Mumbai: Reliance Industries Ltd (RIL), India’s largest company by market value, recorded a 14.14% year-on-year growth in net profit for the quarter ended 31 March at Rs5,376 crore, which was below Street expectations.
A consensus of the earnings estimates of 12 brokerages compiled by Bloomberg showed that RIL’s profit was expected to grow 15%. Some analysts had even expected a growth of around 21%.
The oil-to-yarn and retail conglomerate’s turnover at Rs72,674 crore, however, beat Street estimates by growing 26.2% over the year-ago period. The Bloomberg consensus pegged RIL’s sales to grow around 18.8%.
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“Global economic growth, emerging market demand and tightness in the markets led to recovery in refining margins and record petrochemical margins,” RIL chairman Mukesh Ambani said in a statement released by the company on Thursday after market hours.
For the full year ended 31 March, RIL’s revenue increased 29% over the year-ago period to Rs2.48 trillion. Its net profit in the same period rose 25% to Rs20,286 crore.
RIL rose 1.39% on the Bombay Stock Exchange (BSE) to close at Rs1,039.95 on Thursday. The bourse’s benchmark equity index, the Sensex, gained 0.67% to end at 19,602.23 points.
In the last fiscal, RIL has underperformed the Sensex, losing 2.5% compared with a 10.94% gain for the Sensex. The company announced a dividend of Rs8 per share.
One of the main reasons for RIL’s numbers not being in line with market expectations was lower-than-expected gross refining margins (GRMs) reported by the company in the last quarter, analysts say. GRMs refers to the difference between the total value of petroleum products sold and the price of crude.
RIL reported GRMs of $9.2 (around Rs408 today) per barrel in the January-March quarter against an expectation of around $10 per barrel. Though GRMs rose 22% year-on-year, it was a mere 2.2% higher on a sequential basis.
“If RIL would have reported a GRM of $10-10.2, its Ebit (earnings before interest and tax) from the refining business would have increased by Rs250-300 crore,” said S.P. Tulsian, an independent stock market analyst based in Mumbai.
RIL has always enjoyed a premium of around $3 per barrel to the benchmark Singapore GRMs due to competitive sourcing of crude, but in the last quarter it came down to around $1.8 per barrel.
The cost of crude for RIL is traditionally lower than the benchmark as it buys heavier or more impure varieties of crude for its highly complex refinery at Jamnagar, which can use this crude to yield a product slate of the same standard.
Tulsian observed that as the cost of crude has been soaring globally, the differential between lighter (superior) and heavier varieties of crude have narrowed, resulting in only a marginal improvement in GRMs.
“Also, we do not know when the crude purchase contracts are renewed, so the price rise may have coincided with the renewals,” he said.
Though refining margins didn’t rise substantially, the segment was the best performer among RIL’s businesses, registering a 26% year-on-year growth in operating profit to Rs2,509 crore. The segment contributed a revenue of Rs62,704 crore, a rise of 22% over the year-ago period. Sequentially, however, while revenue rose 19.4%, profit rose 3%.
RIL’s petrochemicals business growth was robust, with turnover increasing 18% over the year-ago period to Rs18,194 crore and operating profit rising 18% in the same period to Rs2,626 crore.
The operating profit margin for the segment remained unchanged over the March 2010 quarter at 14.4%.
The increase in revenue was attributed to higher prices by the firm. The “performance of the segment reflects strong domestic demand across the petrochemical range during this quarter”, a company statement said.
“The refining and petrochemical businesses were expected to do well and have saved RIL to an extent as the oil and gas business didn’t do well,” said Prakash Diwan, head of institutional broking at Networth Stock Broking Ltd.
The oil and gas exploration and production (E&P) segment saw revenue falling 5% year-on-year to Rs4,104 crore, with profits declining 8% in the same period to Rs1,569 crore. The operating profit margin from this business fell 60 basis points to 4%, which the company attributed to a planned shutdown of a part of its refinery in the last quarter. One basis point is one-hundredth of a percentage point.
Analysts state that lack of further clarity on the plan to raise gas output from its D6 block in the Krishna-Godavari (KG) basin, where production has stagnated, along with declining reserves from the Panna-Mukta and Tapti fields are a cause of concern for the company.
RIL is planning to access technical expertise from BP Plc to improve the situation at KG D6. BP is slated to partner the company in its E&P business by taking a 30% stake in 23 oil and gas blocks operated by RIL. The deal, struck in February, will see BP paying $7.2 billion for the stake.
According to a note to RIL’s financial statement for the last quarter of 2011, the company has received $2 billion as a deposit from BP.
It had cash and cash equivalents to the tune of $9.5 billion on its books as on 31 March.
RIL also announced on Thursday that it had discovered gas in a block it operates in the Cauvery-Palar basin. The block is one of the 23 in which BP is to have a 30% stake. During testing, a well in the basin produced 37 million standard cubic feet of gas per day, RIL said.
Graphic by Ahmed Raza Khan/Mint