Mumbai: The oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL) on Friday reported a 21% decline in net profit for the three months ended 30 June, hurt by the worse-than-expected performance of its petrochemicals business and continued weakness in the oil and gas exploration and production segment.
Net profit fell to Rs4,473 crore in the quarter, from Rs5,661 crore in the same period last year, RIL said. The profit came on a 13.4% increase in revenue to Rs91,875 crore, from Rs81,018 crore in the year-ago period.
On a sequential basis, the company posted a 5.6% increase in net profit from the quarter ended 31 March; revenue increased around 8%. Analysts had expected RIL’s quarter-on-quarter (q-o-q) net profit to rise, aided by the rupee’s depreciation against the dollar.
“RIL has improved its earnings profile as profits from operations were higher on a sequential basis on the back of volume growth in the refining business,” chairman Mukesh Ambani said in a statement. “We have commenced our next phase of capital investments in the refining and petrochemical segments to enhance earnings and value of our core energy businesses.”
The reported net profit for the June quarter was better than what the Street had expected. The consensus earnings estimate of 28 brokerage firms compiled by Bloomberg pegged RIL’s net profit at Rs4,376.5 crore, 22.7% lower y-o-y. Revenue was pegged at Rs87,762 crore, an increase of 8.3%.
Crude refining was one of RIL’s businesses that posted a healthy set of numbers in the April-June period. It posted a gross refining margin (GRM) of $7.6 (Rs420 today) per barrel, higher than what most analysts had expected it to report.
GRM, a measure of the difference between the price of crude and value of finished petroleum products sold, remained unchanged over the March quarter, and was 26.2% lower y-o-y.
On a sequential basis, the GRM remained unchanged since “the weakness in product spreads was offset by wider light-heavy crude differentials”, RIL said in its earnings statement.
RIL operates one of the most complex refineries in the world in Jamnagar, Gujarat, which can use heavier (dirtier and cheaper) varieties of crude to yield the same product profile that other refiners achieve using lighter (cleaner and more expensive) crude. A greater price differential between light and heavy crude enhances RIL’s competitiveness.
The regional benchmark Singapore GRM averaged around $6.4 per barrel in the June quarter, which was lower y-o-y due to lower diesel and naphtha spreads, while petrol spreads continued to remain weak.
A slowing Chinese economy, substantial new refining capacity coming on line, a deepening euro zone crisis and higher stocks were some of the reasons for petroleum product margins being weak during the quarter, RIL said.
RIL’s refining throughput had been expected to improve sequentially as, in the January-March quarter, it had a three-week shutdown at one of its crude distillation units that affected volumes in that particular period. In the June quarter, RIL refined 17.3 million tonnes of crude, 6.1% higher than in the March quarter, and around 2% higher over the year-ago period.
Higher crude refining volumes also helped improve RIL revenue and profitability from the business. The segment reported revenue of Rs.85,383 crore, 16% higher y-o-y and 12% higher q-o-q. Earnings before interest and tax from the business was Rs2,151 crore, 27% higher sequentially, but a 33% decline from the year-ago period.
The petrochemicals business result came as a rude surprise for analysts, most of whom were expecting it to be one of the company’s better-performing segments because of a global rebound in petrochemicals margins. On the contrary, the operating profit margin from the business shrank to 8% in the June quarter, from 12.1% a year ago and 10.2% in the March quarter.
Revenue from the business rose 19% y-o-y to Rs21,389 crore, but operating profit fell 20.7% to Rs1,756 crore, which was also a 19.2% sequential decline.
Faced with falling gas production from the D6 block in the Krishna-Godavari (KG) basin, RIL’s exploration and production business continued to be an underperformer, posting a 34% y-o-y decline in operating profit to Rs972 crore, and a 36% decline in revenue to Rs2,508 crore.
The segment profit improved marginally on a sequential basis by 2.2% despite falling production due to the impact of rupee depreciation. Since RIL sells oil and gas in dollar terms, it has benefited from the rupee’s 8.56% fall against the dollar in the June quarter.
“The KG-D6 field produced 0.9 million barrels of crude oil, and 104.40 bcf (billion cubic ft) of natural gas, which was lower by 36.7% and 33.1%, respectively, over the previous period,” RIL said. On a sequential basis, oil production decreased 17% and gas production by 9%.
Mumbai-based independent stock market analyst S.P. Tulsian said RIL finds itself in a very “delicate situation at present”.
“The poor performance of the petrochemical business, which is counted as one of RIL’s most reliable and stable segments, is a big negative for the company,” he said. “This quarter, the impact was partially offset due to the good performance of the refining business, but whether this can be sustained on a continuous basis is the key question.”
RIL’s shares closed at Rs722.65 on BSE on Friday, down 0.7%. The earnings were announced after market hours. The benchmark Sensex lost 0.7% on the same day to close at 17,158.44 points. Over the last one year, the shares have fallen 17.44%, while the Sensex has declined 7.26%.
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