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RIL’s profits climb 13% on higher crude prices

RIL’s profits climb 13% on higher crude prices
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First Published: Fri, Jul 25 2008. 09 21 AM IST

Petro profit: A Reliance Industries petrochemical plant at Jamnagar. The petrochemical business, which contributes to a third of the company’s revenue, saw a Q1 growth of 4% in production to 5 million
Petro profit: A Reliance Industries petrochemical plant at Jamnagar. The petrochemical business, which contributes to a third of the company’s revenue, saw a Q1 growth of 4% in production to 5 million
Updated: Fri, Jul 25 2008. 09 21 AM IST
Mumbai: India’s biggest company by market value Reliance Industries Ltd, or RIL, said on Thursday its net profit in the three months to June rose 13% on higher earnings from processing crude petroleum, prices of which rose more than 35% during the quarter.
Petro profit: A Reliance Industries petrochemical plant at Jamnagar. The petrochemical business, which contributes to a third of the company’s revenue, saw a Q1 growth of 4% in production to 5 million tonnes. Photograph: Reuters
The firm’s gross refinery margins for the June quarter were $15.7 (Rs659) a barrel, significantly above the average of $8 for a plant in Singapore but less than the $15.9 a barrel for Chennai Petroleum Corp. Ltd. “RIL managed to sustain its margins primarily on the back of efficient sourcing of crude oil, ability to produce globally accepted products and flexibility in its crude bucket, product slate and evacuation infrastructure,” it said in a statement.
The company, controlled by billionaire Mukesh Ambani, reported net profit of Rs4,110 crore for the first quarter of the year that began on 1 April, up from Rs3,630 crore in the same period last year. Net turnover for the period rose more than 40% to Rs41,579 crore.
Revenue for the refining and marketing segment rose 46% to Rs32,587 crore, primarily due to high product prices driven by rising crude oil prices. The price hike contributed 41% to the company’s revenue, while higher volumes accounted for about 5%, it said.
“At Reliance, we continued to scale new peaks in financial performance despite challenging business environment including domestic inflation and weakening of the leading economies of the world,” chairman and managing director Mukesh Ambani said.
“Refining has helped drive growth at Reliance and will continue to do so for the next couple of quarters till more refineries come on stream globally next year,” said Mahesh Patil, who helps manage the equivalent of $9 billion in assets at Birla Sun Life Asset Management Co. Ltd in Mumbai. “The next growth cycle has to be from gas.”
Asian prices of diesel, Reliance’s main export, rose 35% during the quarter, in line with crude oil, which rose to record levels, boosting the company’s revenue. Refining profits will help fund Ambani’s $11.3-billion investment plan to develop India’s biggest natural gas discovery and complete a new refinery in western India.
The company’s exports rose 112% to Rs28,357 crore during the quarter. Crude prices have tumbled more than $20 from an all-time high of $147.27 a barrel two weeks ago. Oil was trading at about $124 a barrel on Thursday.
Shares of RIL closed 1.8% up at Rs2,306.55 on the Bombay Stock Exchange on Thursday, while its benchmark Sensex index fell 1.11% to 14,777.01 points. RIL reported results after the markets had closed.
Production at the company’s petrochemical business, which contributes to a third of RIL’s revenue, rose 4% to 5 million tonnes. Quarterly profit before interest and tax at the segment was down 14.4% to Rs1,579 crore, even as revenue rose 12.5% to Rs14,871 crore.
“Petrochemical is still struggling and should continue to do so for the next two to three years,” said Niraj Mansingka, an analyst at Mumbai-based brokerage Edelweiss Capital Ltd. He has a “neutral” recommendation on the stock.
Raw material costs for the company increased 75% to Rs33,527 crore during the quarter due to higher crude and naphtha prices.
RIL is expected to complete building a new refinery this year in Gujarat to process oil into petrol, diesel and naphtha for export to the US, Europe and West Asia.
The new refinery is being built adjacent to a 660,000-barrel-a-day, or bpd, plant owned by parent RIL.
Reliance Petroleum Ltd, the unit that is building the refinery, said earlier this week its 580,000 bpd refinery in Gujarat was 94% complete.
It also repeated previous comments that it was on course to complete the refinery ahead of its initial target of December, but did not give a revised date for commissioning.
RIL said its net profit would have been lower by Rs940 crore if it had followed accounting standard 11, or AS 11, to treat foreign exchange rates. This means its net profit would have been 12.7% below last year’s June quarter earnings. Mint could not independently confirm whether the company had followed AS 11 last year.
AS 11 of the Institute of Chartered Accountants of India governs accounting of foreign currency transactions and translations.
Archana Chaudhary of Bloomberg contributed to this story.
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First Published: Fri, Jul 25 2008. 09 21 AM IST