Refined future

Updated: Apr 29 2006, 05:30am hrs
The numbers from Reliance Industries Ltd (RIL) show its strategy of betting big on the refining business is with an eye to the future. RILs refining business, in fact, has been the key reason for its robust performance during Q4FY06, when it rebounded after a planned shutdown the previous quarter. Utilisation rates in this business are at 95% levels, making up for the shutdown-induced drop in throughput earlier. With its highest-ever gross refining margin (GRM) of $10.3 a barrel for the quarter, RIL has beaten the benchmark Singapore margins by $5.8 per barrel. In fact, other than the higher capacity utilisation, the high refining margin also reflects RILs expertise at negotiating crude purchases under tough conditions. With refineries operating at peak capacities globally, demand expected to outpace supply and geopolitical factors being what they are, refining margins are likely to remain high. Little surprise, then, that one of its biggest new investments is in a new export-oriented refining complex coming up under Reliance Petroleum Ltd.

RIL has also benefited from healthy petrochemical margins. These are high due to high demand, despite strengthening prices. But while margins for RIL on the polymers side (PE and PP) were healthy quarter-on-quarter, they were lower year-on-year. For the next two years, RIL should be comfortably placed on petrochemical margins as well, since new PE and PP capacities will come into play only after FY08. It is also increasing capacities on the petrochemicals side to gain from volumes.

Going forward, FY07 will see RIL putting big money on two major businesses, refining and retail. Alongside, its moves on the KG Basin gas fields are on. While refining expansion at Jamnagar, with global major Chevron, will hold the key to how soon RIL shareholders will benefit from the RPL venture, the organised retailing business will also guzzle investments of about $750 million this fiscal. Already, RILs other income has fallen in FY06. In the coming days, it will have to balance the objective of maintaining tempo on its core businesses, while seeking to ensure returns on its new investments come in quickly.