Re fall helps RIL offset drop in GRM, petchem shines

Written by fe Bureau | Mumbai | Updated: Oct 15 2013, 11:18am hrs
Reliance Industries (RIL) on Monday reported a net profit of R5,490 crore for the quarter ended September 30, an increase of 2.5% sequentially, as a weaker rupee and stronger petrochem margins helped offset a fall in refining margins and sliding oil and gas production. The Street was expecting a bottom line of R5,450 crore.

Earnings before interest depreciation and tax (Ebitda), or operating profit, increased to R7,849 crore, a modest rise of close to 11% sequentially, driven by better margins in the petrochemicals business. The lower output in the oil and gas division and weaker gross refining margins (GRM) of $7.4 per barrel, down from $8.4 per barrel in Q1FY14 and 9.5% in Q1FY13, however, offset some of those gains. The GRMs in Q2FY14, although at a premium of about $2 to the Singapore benchmark, were lower q-o-q and y-oy because of smaller diesel and gasolene cracks during the quarter.

Alok Agarwal, CFO, RIL, told newspersons while the depreciation of the currency had impacted the refining businesssince the company imports crude oil on a net basis it had helped.

A rise in exports, which contributed 66% of revenues, helped boost the top line with revenues rising 15% to R103,758 crore year-on-year and 18.3% sequentially.

A weak rupee helped boost RIL's gains exports recorded a 19.3% in the first half of the current fiscal to Rs134,455 crore. Agarwal said the refinery throughput was the highest ever in Q2FY 14 at 17.7 million metric tonnes adding that sales to public sector companies were lower by 25-30% as a consequence of which RIL had exported more. He said it would take 18-24 months more for the shale gas business to turn cash positive. The company's North American shale gas business, however, continues to perform solidly, with Reliances share of gross production standing at 36.5 Bcfe in 2Q FY14, a growth of 31% y-o-y.

The strong performance of the petrochem segment, which was boosted by the govenment's decision to increase import duty on polymers to 7.5% from 5% in May, helped lift the bottom line.

Other income for RIL was also weaker at Rs2,060 crore, compared with Rs 2,535 crore in the first quarter, and Rs 2,112 crore in the same quarter last year.

Our diversified and integrated petrochemicals business captured margins across segments delivering near-record profit levels even as the domestic economy slowed, Mukesh Ambani, chairman and managing director of Reliance Industries, said in a media statement.

Revenue for the petrochem segment came in at Rs 24,892 crore, up 13.4% from the first quarter, and 12.8% higher than last year. It also witnessed a significant strengthening in Ebit margins to 10.1% in Q2FY14 from 8.6% in Q1FY14 and 7.9% in Q2FY13 on the back of the import duty hike.

RIL has plans to invest in its petrochemical business to increase its capacity over the next three to five years, even as its oil and gas business faces falling output.

Revenue in the company's oil and gas segment remained flat from the first quarter at Rs 1,464 crore, with Ebit margins also staying more or less the same at 24.3%. However, when compared to the previous quarter, the declines are sharp, with revenue down 35% and Ebit margins falling more than 1,400 basis points. Production at KG-D6 was 14 mmscmd in Q2FY14 against 15 mmscmd in Q1FY14.

The company's flagship KG-D6 field produced 1.0 million barrels of crude, 0.13 million barrels of condensate and 94.6BCF of natural gas in 1H FY14, a reduction of 41%, 50% and 52%, respectively, on a y-o-y basis.

While the company attributes the fall in production to geological complexity and a natural decline in the fields, regulator Director General of Hydrocarbons (DGH) accuses RIL of deliberately suppressing production and wants it to surrender over 80% of its KG-D6 block, including eight gas discoveries, for failing to meet contractual output targets. The government is also considering further punitive action on the company, including depriving it from the proposed increase in gas prices based on the formula suggested by the Rangarajan committee, after already deciding to disallow costs related to developing the block.

The RIL stock, which has shed around 6% since it reported Q1FY14 results in July as uncertainty lingers over the fate of its domestic oil and gas business, closed up 0.84% at Rs 870.25 on Monday on the BSE.