Reliance Industries profit growth below par, other income saves the day

Written by fe Bureau | Mumbai | Updated: Jan 18 2014, 05:53am hrs
Integrated oil and gas major Reliance Industries (RIL) on Friday reported a flat net profit of Rs 5,511 crore for the three months to December, marginally ahead of the Streets expectations. The bottom line was boosted by a 32% year-on-year jump in other income to Rs 2,305 crore.

Gross refining margins (GRM) came in at just $7.60 per barrel, down from $7.70 per barrel in Q2FY14 and $9.60 per barrel in Q3FY13. Consequently, earnings before interest and tax (Ebit) for the refining business fell while subdued petrochemicals prices hurt the Ebit for that segment, which slipped 9.7% year-on-year.

RILs operating profit margins came off by 156 basis points y-o-y to 7.36%, while operating profit at R7,622 crore saw a drop of close to 3% sequentially and almost 9% y-o-y.

Analysts, however, see a recovery in GRMs after the recent weakness and believe that may help RIL to report its highest ever quarterly profit in the fourth quarter. The recent GRM recovery is partly due to seasonal factors but a strong rise in global oil demand has also helped, BofA Merrill Lynch wrote recently.

We saw wider light-heavy crude differential and higher utilisation but due to a shutdown of the refinery, the throughput was lower and impacted the volumes. Also, globally refining margins dropped, said Reliance Industries chief financial officer Alok Agarwal.

RILs turnover stood at Rs 1,06,383 crore, flat sequentially but up 10.5%, year-on-year.

Agarwal said the company earned better realisations on middle distillates such as diesel and naphtha product cracks helping the GRM, which beat the Singapore GRMs by $3.30 per barrel, the best in a decade.

RILs shale gas operations in the US stayed strong. The firms share of gross production stood at 43 billion cubic feet equivalent in the quarter, a growth of 33% y-o-y, while revenues rose 29%.

The upstream business posted a jump of 18.4% in revenues and 51.7% in Ebit for the December quarter against the October quarter.

For the third quarter, RIL produced 12 million metric standard cubic metres per day (mmscmd) of gas, which is expected to increase by 2 mmscmd in the coming quarters as the MA-8 well in the Krishna-Godavari Basin is stabilising slowly, said Agarwal.

Commenting on the petrochemicals business, Agarwal said that traditionally, Q3 is a softer quarter. While polymer prices were volatile, polyester prices stayed flat and fibre intermediates were poor. This was the most important factor which impacted the overall performance, he said.

Going forward, he said the next quarter is expected to be good as the first 145 days of the current quarter has seen better GRMs and better petchem prices.