Low exports, margins hurt RIL earnings

Low exports, margins hurt RIL earnings
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First Published: Sat, Jul 25 2009. 12 25 AM IST

Net sales declined 23% to Rs32,055 crore. This is RIL’s third consecutive quarterly dip in net profit. Ahmed Raza Khan / Mint
Net sales declined 23% to Rs32,055 crore. This is RIL’s third consecutive quarterly dip in net profit. Ahmed Raza Khan / Mint
Updated: Sat, Jul 25 2009. 12 25 AM IST
Mumbai: Reliance Industries Ltd, (RIL) India’s largest firm by market capitalization, posted disappointing first-quarter results on Friday, with many of its key indicators declining sharper than market expectations.
Net sales declined 23% to Rs32,055 crore. This is RIL’s third consecutive quarterly dip in net profit. Ahmed Raza Khan / Mint
RIL, owned by Mukesh Ambani, reported a 11.5% year-on-year dip in net profit to Rs3,636 crore for the April-June period as it struggled with lower price realizations from reduced exports and shrinking refining margins. Net sales declined 23% to Rs32,055 crore. This is RIL’s third consecutive quarterly dip in net profit.
While many sector analysts had estimated a fall in revenue and profit, actual numbers came lower, missing forecasts. A Mint poll of nine brokerages had predicted net profit of Rs3,959 crore on average and net sales of Rs32,880 crore.
The results were released late afternoon on Friday after the markets closed. An analyst tracking the firm said RIL’s share price could fall on Monday when trading resumed. On Friday, the shares were down 1.2% at Rs2,013.75. The benchmark Sensex index climbed 147.92 points, or 0.97%, to 15,378.96.
Reliance’s net profit was also bolstered by an at least three-fold increase in “other income” to Rs702 crore from Rs226 crore a year earlier. In a statement, RIL attributed this to “higher interest income on account of higher cash and cash equivalents”.
Maulik Patel, a sector analyst with KR Choksey Shares and Securities Pvt. Ltd, agreed that the “base effect” from last year played a role in depressing RIL’s financials, but said he was more concerned with the unusually lower level of gross refining margins (GRMs), or revenue from turning crude oil into a variety of fuels. The GRMs this quarter halved to $7.5 (Rs363) a barrel from $15.7 a year ago. “Singapore GRMs for the quarter were $4.04 a barrel and RIL’s margins have a lower premium” over the regional benchmark, said Patel, adding that he was bothered by the $5.4 a barrel GRM turned in by Reliance Petroleum Ltd’s (RPL) new refinery.
RPL’s 580,000-barrels a day refinery at Jamnagar, Gujarat, commissioned in end-2008, is fully operational now and will soon be merged with RIL. RPL, which declared a turnover of Rs7,639 crore and net profit of Rs105 crore, is awaiting statutory approvals for a proposed merger with RIL. The June quarter marked the commencement of gas production from its D6 block at the Krishna-Godavari, or KG, basin, adding to RIL’s revenue from the oil and gas exploration (E&P) segment.
Chairman Mukesh Ambani termed the start of the new Jamnagar refinery and the deep-water, oil and gas KG D6 block as “noteworthy accomplishments”, and pointed them out as future growth drivers that would also “change the energy landscape of India and the industry globally”.
The global economic slowdown that has subdued demand for high-value fuels such as gasoline has taken its toll and is reflected in RIL’s numbers. The company’s exports fell 38.5% to Rs17,433 crore as product prices were at levels lower than last year. RPL’s older 660,000-barrels-a-day refinery at Jamnagar gave up its “exports oriented unit” status to focus on the domestic market, which, in part, contributed to the decline in the volume of exports.
RIL, India’s largest petrochemicals maker and second largest oil refiner, saw a near 23% decline in both its petrochemical and refining segments to Rs11,540 crore and Rs25,180 crore, respectively, while revenues from its E&P business swelled 137% to Rs1,864 crore, largely on the back of gas sales from its KG operations.
Previews had foreseen some of this. Pradeep Mirchandani and Adarsh Parasrampuria, sector analysts with JPMorgan India Pvt. Ltd, had written in a 13 July report that “stable petrochemical margins, rupee depreciation and revenues from KG D6 field would mitigate lower profits from the refining business”.
“Petroleum product prices could not catch up with the surge in crude prices, which impacted the product spreads during Q1FY10 (first quarter of fiscal 2010). None of the product spreads averaged in double digits signifying a stressful environment for the refiners,” Rohit Nagraj, an analyst with Mumbai-based brokerage Prabhudas Lilladher Pvt. Ltd, commented in a 7 July report on the sector.
For the quarter to 30 June, RIL reduced employee cost to Rs546 crore from Rs651 crore last year and other expenditure by 36.9% to Rs2,080 crore “on account of lower conversion cost, selling expenses and exchange rate gain”.
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First Published: Sat, Jul 25 2009. 12 25 AM IST
More Topics: Company results | Q1 | Reliance | Loss | Petrochemicals |