The Reliance Industries Ltd (RIL) net profit after exceptional items for the December quarter, 9.8% lower than in the same period in 2007, easily beat Street estimates. Profits were boosted by higher other income, the result of cash infusion from converting warrants.
Total segment profit before interest and tax was down 13.3%. Revenues in refining were hit the most, falling 16.9%, while petrochemical revenues were flat.
Segment profits in refining were down 28% year-on-year (y-o-y), while profits from petrochemicals were down 6.8%. Both revenues as well as profits in the company’s smaller oil and gas operations were, however, much higher than a year ago.
In refining, it processed 7.87 million tonnes (mt) of crude, against 8.21mt in the September quarter and 7.6mt in the December 2007 quarter. Gross refining margins fell to $10 (Rs489 today) per barrel, against $13.4 per barrel in the September quarter and $15.4 per barrel in the December 2007 quarter.
The spread that RIL has enjoyed over Singapore complex gross refining margins has come down from $7.7 per barrel in the September quarter to $6.4 per barrel. The upshot: the Ebit (earnings before interest and taxes) margin in the business fell to 8.5%, against 10.4% in the same period of the previous year.
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Interestingly, margins have improved compared with the September quarter, when Ebit margin in refining was 7.6%.
In petrochemicals, with both the final product as well as raw material prices coming down, the company was able to improve its segment Ebit margin against the September quarter. The margin, which was 12.2% for the September quarter, increased to 13.1% for the December quarter. The company says, “Lower level of product prices led to increased domestic demand and improvement in Ebit margin.”
Turnover during the quarter was affected both by lower prices and falling volumes. During the first half of the year, turnover rose by 38% y-o-y, with 36% coming from higher prices and 2% from greater volumes. In contrast, for the nine months ended 31 December, turnover rose by 21% y-o-y, with 22% coming from higher prices and a 1% decrease in volumes.
Despite the carnage in the refining and petrochemicals industry last quarter, RIL has managed to post decent results, confounding analysts and justifying its premium valuations.
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Graphics by Paras Jain / Mint