RIL posts marginal rise in Q4 profit5 min read . Updated: 19 Apr 2014, 12:48 AM IST
Better-than-expected refining margins, weak rupee boost RIL to highest quarterly profit in more than two years
Mumbai: Energy giant Reliance Industries Ltd (RIL) on Friday reported its highest quarterly net profit in more than two years, helped by better-than-expected refining margins and a weaker rupee that boosted export earnings.
RIL’s net profit rose 0.8% to ₹ 5,631 crore in the three months ended 31 March from ₹ 5,590 crore a year earlier. The profit was 2.2% higher from the preceding quarter.
Revenue rose 12.9% to ₹ 97,807 crore in the quarter from a year earlier, but was 8.1% lower than in the October-December period.
The profit, the highest posted by the company since the September 2011 quarter, was in line with the estimate of ₹ 5,630 crore in a Bloomberg survey of 24 analysts. Revenue, however, fell short of the ₹ 1.01 trillion estimate.
RIL, controlled by India’s richest man Mukesh Ambani, benefited from a weaker rupee that boosted export earnings; the local currency averaged 61.80 per US dollar in the quarter, compared with 54.20 a year earlier. The rupee has risen nearly 3% since the start of this year.
The company, which runs the world’s largest refining complex in Jamnagar in Gujarat, also gained from a recovery in refining margins. Its gross refining margin (GRM)—the difference between the selling price of finished petroleum products and the cost of processing crude, a key indicator of profitability—rose to $9.3 per barrel in the March quarter from $7.6 in the preceding three months.
Those factors offset lower revenue from RIL’s oil and gas exploration and production (E&P) business, and a maintenance shutdown at one of its units in Jamnagar that reduced the quantity of crude oil it processed.
“RIL’s reported numbers are absolutely in line with what was expected," said Deven Choksey, managing director at KR Choksey Shares and Securities Pvt. Ltd. “In fact, had they not revalued some of their assets and accounted for higher depreciation, the net profit would have been higher by another ₹ 200 crore."
For the full year ended 31 March, RIL reported a stand-alone net profit of ₹ 21,984 crore, up 4.7%, and revenue of ₹ 4.01 trillion, up 8.1%.
“FY (fiscal year) 2013-14 was a satisfying year for RIL. Refining business delivered the highest ever profits with a sharp recovery in GRMs towards the end of the year," RIL chairman Ambani said in a statement.
Ambani added that while RIL continued to face technical challenges in expanding the domestic upstream production, the US shale gas business grew significantly during the year and had become a material contributor to the company’s earnings.
Fiscal 2014 was significant for RIL also because consolidated net profit increased 7.7% to ₹ 22,493 crore, outpacing the rise in stand-alone profit, chief financial officer Alok Agarwal said.
“This was mainly because of a 35-40% increase in our shale gas business and a turnaround in our retail business," he said.
Agarwal also said that transportation fuel demand is expected to be high this year. The company is expecting better growth in emerging markets such as Brazil, Indonesia and India.
RIL has a positive outlook for calendar year 2014 on the back of strong oil demand, Agarwal added.
The company’s refining business, the biggest contributor to its overall earnings, posted a record quarterly operating profit of ₹ 3,954 crore (up 12.3% year-on-year and 25.9% sequentially).
Revenue from the refining segment increased 12.5% from a year earlier to ₹ 87,624 crore. But compared with the October-December period, the revenue was down 8.2% because of lower crude processed during the March quarter owing to the maintenance shutdown.
Explaining the reason for RIL’s sharply improved GRMs in the last quarter of 2013-14, the company said the so-called middle distillates (diesel, kerosene and jet fuel, which comprise the majority of RIL’s product portfolio) “continued to witness stable demand from emerging economies despite price adjustments in some countries".
“The overall demand prospect for gasoil (diesel) continues to remain promising in the Asia-Pacific region on account of rising demand for transportation fuels, robust industrial and agricultural activities," Agarwal said.
While RIL’s petrochemicals business performed well year-on-year, on a sequential basis profitability from the business declined because of lower revenue. The business reported an operating profit of ₹ 2,096 crore for the March quarter, 10.6% higher from a year earlier, but 1.3% lower from the December quarter.
Revenue from RIL’s petrochemicals business fell 3.7% quarter-on-quarter to ₹ 24,343 crore, although it was up 10% from the year-earlier period.
RIL’s oil and gas E&P business continued to be a laggard, with revenue of ₹ 1,417 crore in the quarter, 11.3% down year-on-year and 18.2% down sequentially.
Gas production from the company’s D6 field in the Krishna-Godavari basin averaged 13-14 million standard cubic metres per day, according to Agarwal, which is an increase of around 11%.
While RIL’s domestic E&P business may not be doing so well, its international shale gas business performed well through the fiscal year.
The company’s US shale gas business delivered revenue of $893.3 million and an operating profit of $659.4 million, a year-on-year increase of 45% and 37%, respectively.
Agarwal said the US shale gas business will remain a priority area for RIL in this fiscal year as well and the company would invest $600-700 million in it in 2014-15.
The conglomerate’s retail business continued with its turnaround and achieved a profit before depreciation, interest and tax of ₹ 363 crore for fiscal 2014 on revenue of ₹ 14,496 crore.
RIL has been criticized often for treasury income contributing more to its profit than its operating businesses. But in the March quarter, its so-called other income (from non-operating sources of revenue) fell 9.2% from a year earlier to ₹ 2,036 crore.
“RIL’s reported net profit was also subdued because its other income was lower, but that is good in the long run since this money is being invested for capital expansion projects in sectors like telecom and petrochemicals," Choksey said.
Out of the $13 billion capital expenditure earmarked to augment capacity across its refining and petrochemicals businesses, Agarwal said that till date, around 30% of that outlay had been invested.
RIL had outstanding debt of ₹ 89,968 crore at the end of 31 March, 23.84% higher than a year earlier.
Friday was a stock market holiday. On Thursday, the company’s shares rose 1.88% to ₹ 958.75 each on BSE while the benchmark Sensex index gained 1.58% to 22,628.84 points. RIL shares have gained 23.85% in a year while the Sensex has risen 20.81%.
Bloomberg contributed to this story.