Mumbai: Reliance Industries Ltd (RIL), India’s largest company by market value, posted a 28.1% year-on-year (y-o-y) growth in net profit for the quarter ended December, and attributed the performance to strong domestic demand and “highly competitive assets”.
RIL, which announced its result on Friday after market hours, recorded a net profit of Rs5,136 crore and a turnover of Rs62,399 crore for the quarter under review. The turnover was an increase of 6% over the year-ago period.
“Robust demand growth in home markets and highly competitive assets enabled Reliance to have industry leading operating rates and margins,” RIL chairman Mukesh Ambani said in a statement issued by the firm.
Ambani also said that during the December quarter, petrochemical and refining margins continued to improve and “recorded historic levels” for certain products.
RIL’s share price gained 1.73% on the Bombay Stock Exchange (BSE) on Friday to close at Rs986.50. The Sensex, BSE’s benchmark equity index, lost 0.2% to end at 19,007.53 points.
Over the last year, RIL has underperformed the market, losing 6.39%, while the Sensex has gained 11.47%.
RIL posted a significant improvement in its gross refining margin (GRM), or the difference between the total value of petroleum products sold and the price of crude. For the quarter under review, RIL’s GRM stood at $9 (Rs411 today) per barrel, up from $5.9 a barrel in the corresponding quarter last fiscal. The company attributed this to the efficient global sourcing of crude and a greater light-heavy crude differential (the difference in prices of better quality—or light—crude and dirtier—or heavier—crude). High GRMs were also aided by greater petrol, diesel and naphtha cracks, or the spread between the cost of these fuels over the cost of crude.
Analysts stated that the RIL results were mostly in line with their expectations.
“The results have been betterthan expected. Though the RIL refineries processed 0.5 million tonnes of lesser crude year-on-year, it was offset by the increase in GRMs,” said Mumbai-based independent stock market analyst S.P. Tulsian.
Tulsian estimated RIL’s GRM to cross $9.5 per barrel for the quarter ending 31 March, as RIL would be poised to take advantage of a growing difference in prices of light and heavy crude, owing to its highly complex refinery. A more complex refinery can utilize heavier, or dirtier, varieties of crude to yield the same product slate.
A decline in the quantity of crude processed was the result of a planned shutdown of a unit for 22 days in the December quarter.
Tulsian also said that a relatively weaker performance by RIL’s upstream business was offset by revenue and profit growth from the petrochemical business. Revenue from RIL’s exploration and production business posted a y-o-y growth of 18.4% to Rs4,178 crore, while earning before interest and tax (Ebit) from the segment grew merely 1.8% to Rs1,504 crore. The RIL statement said revenue growth was partly offset by lower output from the Panna-Mukta and Tapti fields.
During the nine months ended December, RIL produced 6.43 million barrels of crude oil and 559 billion cu. ft of natural gas from its prolific D6 block in the Krishna-Godavari basin, a y-o-y growth of 139% and 75%, respectively, the company said.
The petrochemicals business, on the other hand, posted an 18.2% growth in Ebit to Rs2,429 crore in the December quarter, while revenue grew 8.2% to Rs15,962 crore in the same period. The company called the third quarter of the current fiscal the “best ever” for its petrochemicals segment with respect to production, revenue and Ebit.
“Performance of the segment reflects strong domestic demand in most of the products and lower-than-expected impact on margins due to commissioning of new capacities, based on advantaged feedstock, in Middle East,” it said.
RIL said that during the quarter, local demand for polyester products was higher by 10% from the year earlier and witnessed robust margins due to inadequate new capacities and high cotton prices.
The company’s performance was also aided by other income, or that from activities other than the main business, of Rs741 crore, which was 45% higher than the year-ago period. Analysts attribute this to efficient treasury operations by the company.
Despite outstanding debt increasing 12.34% in the nine months ended December, RIL has also cut net gearing to 19.6% from 22% as of 31 March 2010. Net gearing is defined as the total debt on a firm’s balance sheet, net of cash and cash equivalents, as a percentage of the combined total of shareholders’ funds and debt funds.
“The results are broadly in line with our expectation. The GRM is marginally lower than the $9.25 per barrel that we have expected, but we continue to hold the view that the upswing in GRMs would continue,” said Niraj Mansingka, oil and gas sector analyst at Mumbai-based brokerage Edelweiss Securities Ltd. “The key development to watch out for would be any guidance with respect to gas production that the management gives out.”