Monday, July 25, 2011

Reliance Industries Ltd. Net Income for the quarter ended 30 June 2011

Reliance Industries Ltd. Net Income for the quarter ended 30 June 2011 : India’s largest company by market value, reported a 16.7% jump in stand-alone net profit for the quarter ended 30 June to Rs5,661 crore from the year earlier, aided by robust growth in the refining business.

Net income growth could have been faster but for a decline in revenue and profit from the oil and gas business, and a muted performance by the petrochemical segment. Revenue rose 37.2% to Rs83,689 crore.

While RIL’s revenue was higher than estimated by Bloomberg, the profit was marginally below expectation. The consensus estimate pegged stand-alone net profit at Rs5,712.58 crore and net sales at Rs77,616.6 crore.

Profit was substantially aided by a Rs356 crore rise in its other income to Rs1,078 crore, a result of “larger cash balance and higher yields”. The incremental other income contributed 44% to the conglomerate’s growth in net profit.

RIL rose 0.98% to Rs882.15 on BSE on Monday while the Sensex gained 0.8%. Earnings were announced after market hours. Over the last one year, RIL has underperformed the Sensex, losing 16.15%, while the benchmark index has gained 4.72%.

The company witnessed a substantial decline in its overall operating profit margin, which slid to 11.9% from 15.3%.

“This was due to the base effect and higher weightage of the low-margin refining business (in the current quarter’s performance),” RIL said.

The company has also seen a 40.6% year-on-year (y-o-y) increase in expenditure to Rs64,443 crore on account of the consumption of raw materials, mainly due to the higher cost of crude. Other expenditure increased 20.1% in the same period for various reasons, including higher power and fuel expenses.

“The growth in earnings was driven by strong refining margins and sustained performance in the petrochemicals business,” RIL chairman Mukesh Ambani said in a statement.

Earnings before interest and tax (Ebit) from the refining business grew 57.2% to Rs3,199 crore on a 45.8% increase in segment revenue to Rs73,689 crore.

The company reported gross refining margins (GRMs) of $10.3 (Rs457 today) per barrel for the quarter, which was in line with what analysts estimated. It represented a $1.8 per barrel premium to the benchmark Singapore GRMs in that period. The premium that RIL’s GRMs command over the benchmark was unchanged over the March quarter.

GRM is the spread between the cost of crude and the revenue earned from selling finished petroleum products.

In its statement, RIL said the refining business was aided by a higher differential in the prices of lighter (purer and more expensive) and heavier (less pure and cheaper) varieties of crude. The light-heavy differential in the period improved to $5.1 per barrel against $2.7 in the same quarter last year.

“The significant change can be attributed to strong demand for light products, supply disruption in Libya and increased supply (of mainly heavy-sour) of crude from Saudi Arabia,” RIL said.

The so-called gasoil crack, or the spread between the production cost of diesel and its market price, in Asia remained strong due to demand from the power sector in China and refinery outages in Japan, because of the earthquake and tsunami in March, RIL said.

Analysts said the results were in line with expectations. Some positive news from the oil and gas business alone could be a trigger for the stock, they said.

“The refining margin may have peaked out in the refining business and could improve to $10.8 per barrel at best in the coming quarters,” said Prakash Diwan, head of institutional broking at Mumbai-based Networth Stock Broking Ltd.

Diwan said that factors such as the price of crude gradually softening and the situation in Japan slowly returning to normal after the earthquake would cap a further upside in RIL’s GRMs.

A Mumbai-based analyst with a foreign brokerage firm said more than the price of crude, weakening global demand for oil will influence GRMs in coming quarters. He did not want to be named as he is not authorized to speak to the media.

Both Diwan and the analyst agreed that the commissioning of new refining facilities in the neighbourhood, including West Asia and China, could pose a pressure on margins.

The oil and gas business underperformed, mostly due to lower gas production from RIL’s D6 block in the Krishna-Godavari basin and its Panna, Mukta and Tapti fields.

There was a 16.5% y-o-y fall in revenue from the segment to Rs3,894 crore, while Ebit from the vertical slumped 23.3% in the same period to Rs1,473 crore. Gas and oil production from D6 were 18% and 41% lower, respectively, from a year ago.

In February, RIL tied up with London-based BP Plc to partner the company in its domestic oil and gas business, by acquiring a 30% stake in 23 of its oil and gas blocks. BP, with its deepwater drilling expertise, is expected to help RIL find a solution to declining gas production at D6.
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