Bearing the brunt of a sharp slump in the global price of crude, Reliance Industries (RIL) reported a 4.5% year-on-year decline in consolidated net profit for the quarter ended December 31 at R5,256 crore.
Any movement in crude prices has a greater impact on RIL’s standalone business, which comprises the hydrocarbons production, refining and petrochemicals segments. Consequently, RIL’s standalone net profit for the October-December quarter fell 7.72% year-on-year to R5,085 crore.
The decline in RIL’s profitability, its first in nine quarters, was sharper when compared on a sequential basis. On a consolidated and standalone basis, the Mukesh Ambani-led conglomerate’s December quarter net profit fell 12% and 11.44%, respectively.
RIL’s standalone net profit and turnover came in below Street estimates. A Bloomberg consensus of RIL’s earnings estimates had pegged net profit at R5,258 crore and revenues at R85,119 crore.
The weakness in RIL’s earnings was due to several factors, foremost among them a significant decline in revenues due to a sharp decline in crude oil prices and lower exports. RIL reported a consolidated turnover of R96,330 crore in the December quarter, down 20.4% over the year earlier, and down 15% over the preceding quarter.
Commenting on the results, chairman Ambani said in a statement that his company’s performance in the refining and petrochemicals business was “industry-leading” despite sharp decline in crude and feedstock prices.
“We continue to advance our refining and petrochemicals business capital investments, which will come to fruition over the next four to six quarters,” Ambani said.
On a standalone basis, RIL’s operating turnover stood at R80,196 crore, a decline of 22.5% over the previous year, and a 17% sequential drop.
In its earnings statement issued after market hours, RIL said the volatility across the hydrocarbons business and especially the 40% decline in benchmark crude prices in the October-December period had a “consequent impact on petrochemicals feedstock and product prices”.
RIL also said that in this period of volatility, the company “aggressively sold down stock to maintain an optimum level of inventory, which impacted realised deltas and margins for products. This coupled with lower holding value of closing stock impacted performance of refining and petrochemicals business.”
The company’s petrochemicals business reported an operating profit of R2,064 crore, 2.4% lower year-on-year and down 12.6% over the earlier quarter. Turnover from the segment declined 15.2% year-on-year and 13.7% sequentially to R23,001 crore.
An RIL executive said that since crude prices weren’t expected to fall much further from current levels, the company had begun stocking products again across the value chain.
In its refining business, RIL reported revenues of Rs 81,777 crore, down 24.1% over the year earlier and 21% over the September quarter. Earnings before interest and tax from the business stood at Rs 3,267 crore, up 0.8% over the same period in FY14 and 15% lower sequentially.
RIL’s gross refining margin (GRM) stood at $7.30 per barrel, sharply lower than the $8.30 per barrel reported in the July-September period, and below the GRM of $7.60 per barrel reported a year earlier.
During the same period, the benchmark Singapore GRM improved sharply to $6.30 per barrel from $5.40 a year earlier. This was due to better margins in middle distillate products.
A Bank of America Merrill Lynch report dated January 8 had said that while RIL’s GRMs were likely to benefit from better margins for products it makes like petroleum coke, LPG and diesel, “crude inventory losses from sharp crude fall is expected neutralise gains from product cracks and light-heavy crude spread rise”.
RIL’s businesses that did well during the December quarter were its retail venture and shale gas business in the US. The retail segment reported an operating profit of Rs 133 crore, registering a more than threefold growth, while revenues grew 19% in the same period to Rs 4,686 crore.
The US shale business reported a sevenfold increase in operating profit to Rs 567 crore. Turnover from the segment 25% to Rs 1,488 crore in the same period.
RIL had a gross debt of Rs 1.5 lakh crore and cash and cash equivalents of Rs 78,691 crore as on December 31.