Mumbai: The Mukesh Ambani-led conglomerate Reliance Industries Ltd (RIL) on Thursday reported a fall in net profit for the second quarter in a row, bringing to end a year that a company official described during a press briefing in Mumbai as a “difficult and exceptional one”.
India’s largest company by market capitalization reported a 1% decline in net profit, to Rs3,874 crore, for the quarter ended 31 March. It beat analyst expectations of deeper losses thanks to a 240% rise in other income.
Other income is an accounting practice that reflects exceptional, one-time income.
RIL’s net turnover for the quarter was Rs28,362 crore, down from Rs37,286 crore in the corresponding quarter last year. For the full fiscal year, RIL’s net turnover increased by 9.6% to Rs1,46,291 crore and net profit by 2.3% to Rs15,607 crore.
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A Mint poll of result previews put out by five brokerage houses had predicted a profit after tax of Rs3,787 crore on revenues of Rs33,525 crore.
“The results are pretty much on track with our expectations although we were expecting gross refining margins (GRMs) of $10.5 (Rs527) a barrel,” said Deepak Pareek, analyst with Mumbai-based Angel Broking Ltd, who added that while the revenues may have fallen across business segments, the important thing was Ebit (earnings before interest and taxes) margins in these segments, all of which had increased or been steady.
The loss this quarter is net of an exceptional item outgo of Rs370 crore as “provision made towards estimated claims on account of subsidiaries”, the company said in a release.
The income statement also has an exceptionally high ‘other income’ figure of Rs993 crore for the quarter and Rs2,033 crore for 2008-09, against Rs289 crore and Rs895 crore, respectively, last fiscal.
A company statement attributed this to “higher interest income on account of higher cash and cash equivalents and gain on sale of investments”. A company spokesperson pointed to the “cash and cash equivalents” of nearly Rs25,000 crore that boosted interest earnings.
The loss is RIL’s second in as many quarters, largely on account of falling revenues in its major businesses of hydrocarbons exploration, crude oil refining and petrochemical refining. Falling crude prices have put pressure on refining margins at RIL’s Jamnagar refinery complex, the largest in the world.
Exploration and production revenues fallen 11.2% this quarter, refining revenues by 24.6% and in petrochemical manufacturing by 31.1%.
RIL’s GRMs, or the money earned by turning crude oil into high-value fuels, for the quarter were $9.9 a barrel, a little lower than analyst expectations, but above benchmark Singapore refining margins.
The March quarter was also the first in which RIL booked revenue from subsidiary Reliance Petroleum Ltd (RPL); beginning of gas production from the Krishna-Godavari (KG) basin; and an initiative to reopen RIL’s closed retail petrol pumps.
Calling it “a transformational year” for RIL, chairman and managing director Ambani counted commissioning of its 580,000 barrels a day refinery in Jamnagar and “substantially completed gas development projects” as milestones that “have set new global benchmarks for project execution”. Both projects were completed in record time.
Pareek noted that proceeds from the expanded refinery and gas and oil production would bolster RIL’s revenues going forward. Since capital expenditure for the two projects is largely taken care of, RIL’s debt requirements, too, will be lower .
The company had a one-and-a-half times increase in outstanding debt, which stood at Rs53,457 crore on 31 March.
Accordingly, the payout on account of ‘interest and finance charges’ increased to Rs1,692 crore for fiscal 2009 from Rs1,077 crore last fiscal.
RPL, which also declared its first unaudited quarterly results on Thursday, showed revenues of Rs3,678 crore and net profit of Rs84 crore. In March this year, RIL announced that it would merge its subsidiary back into itself with RPL shareholders getting one RIL share for every 16 RPL shares. US energy firm Chevron Corp.,which had a 5% stake in RPL, exited selling its equity to RIL soon after, forgoing an option to increase its holding to 29%.
The Bombay high court’s final decision on the lawsuit between RIL and Anil Ambani- owned Reliance Natural Resources Ltd (RNRL), and ramp-up of the gas production from KG block would be two things to watch out for in the near term, an end-March results preview from Harshad Borawake, a Mumbai-based sector analyst with Motilal Oswal Securities Ltd, had said.
RIL and RNRL are fighting over the right to 28 million standard cu. m of gas a day (mscmd).
RNRL wants the gas at a price lower than the government-fixed $4.2 per million British thermal units.
“When the gas output plateaus off (at 80 mscmd), the financial upside could be as much as Rs10,000 crore, but that would only be in 2010-11. In 2009-10, the bulk of the revenues will come in the last two quarters,” said a Mumbai-based analyst with a foreign research firm, who did not want to be identified.
RIL’s shares rose 2.7% on Thursday to close at Rs1,762.35 on the Bombay Stock Exchange, in line with a 2.93% increase in the benchmark Sensex, which closed at 11,134.99 points. The results were declared after close of trading on Thursday.
Bloomberg contributed to this story.
Graphics by Sandeep Bhatnagar / Mint