In line with market expectations, Reliance Industries Ltd (RIL) reported a drop of 4.5 per cent in consolidated net profit at Rs 5,256 crore for the quarter ended December last year. The company’s standalone net profit stood at Rs 5,085 crore, down 7.72 per cent. This was the first drop in RIL’s profit in the past nine quarters. The company reported a fall in earnings on a quarter-on-quarter, as well as a year-on-year basis.
“This was a tough quarter. In the commodities business, this kind of volatility leads to a lot of challenges in terms of making sure margins do not get pressured. We did proactive risk and inventory management. Volatility and nervousness in the market continues and we are cautiously optimistic,” said Chief Financial Officer Alok Agarwal.
A 40 per cent annual fall in benchmark oil prices weighed heavily on the company’s revenues.
While consolidated sales stood at Rs 96,330 crore, down 20.4 per cent, standalone sales fell 22.5 per cent to Rs 80,196 crore. For the corresponding year-ago periods, consolidated turnover was Rs 1,21,077 crore while standalone sales stood at 10,3521 crore.
Chairman and Managing Director Mukesh Ambani said, “Our focus on operational efficiency and the superior configuration of assets helped us deliver an industry-leading performance in the refining and petrochemicals business, despite a sharp decline in crude and feed stock prices. The performance also highlights the robustness of our risk management and proficiency of people and processes across the integrated chain.
“We continued to advance our refining and petrochemicals business capital investments, which will come to fruition over the next four-six quarters. These investments demonstrate our commitment to creating value through the business cycle. During the quarter, Reliance Retail registered year-on-year growth of 19 per cent in turnover, with improved margins and profitability,” he added.
Ahead of the announcement of the company’s results, the company stock closed at Rs 869, up 0.51 per cent, on the BSE. The stock has under-performed the Sensex for the seventh consecutive year.
“The quarter witnessed heightened volatility across the hydrocarbon business,” RIL said. At Rs 2,340 crore, other income was higher than Rs 2,076 crore in the year-ago period, primarily on account of higher profit on sale of investments.
Depreciation, including depletion and amortisation, was higher by 6.4 per cent at Rs 2,954 crore compared with Rs 2,776 crore in the December quarter of 2013. Interest cost stood at Rs 1,137 crore, against Rs 961 crore in the year-ago period, primarily. The rise was due to the consolidation of Network 18 Media & Investments Ltd this financial year, as well as higher average exchange rate during the quarter, RIL said.
Refining & petrochemicals
Refining and petrochemicals, RIL’s core businesses, accounts for up to 95 per cent of the company’s net sales and 84 per cent of its operating profit. Gross refining margin (GRM), the earnings from turning every barrel of crude oil into fuel, stood at $7.3 in the December quarter, against $7.6 in the corresponding period of the previous year. Analysts had estimated a GRM of $7.5-7.7.
The benchmark Singapore GRM is expected to have improved to $6.3 during the December quarter from $4.3 in the year-ago period. “GRM indicates higher inventory losses than expected, but it is likely to be a one-off and we are not perturbed by it. Overall, we maintain Reliance’s core business is highly cyclical and does not provide a core competitive advantage,” said Piyush Jain, equity research analyst, Morningstar India.
The company’s exports from India fell 21.5 per cent to Rs 58,507 crore in October-December 2014 from Rs 74,495 crore in the corresponding period of 2013. During the quarter, revenue from the refining and marketing segment decreased 24.1 per cent to Rs 81,777 crore year-on-year.
Revenue from the petrochemicals segment declined 15.2 per cent on an annual basis to Rs 23,001 crore due to lower feedstock and product prices. This segment’s earnings before interest and tax (Ebit) declined 2.4 per cent to Rs 2,064 crore on a year-on-year basis. For the quarter, the Ebit margin improved to nine per cent from 7.8 per cent in the third quarter of FY14. The improvement was aided by firm polymer and polyester deltas.
Exploration and production
Production from the company’s D6 block in the Krishna-Godavari basin was steady at 12 million standard cubic metres a day. The shale gas business witnessed macro headwinds, with a sharp downturn in commodity prices, especially of oil. Natural gas spot prices dropped 24 per cent to $3.14 per million British thermal units. Operationally, the business continued to see a strong performance, with production at record levels, especially at the Pioneer and Chevron joint ventures (JVs), RIL said. Gross production across JVs averaged 1.25 billion cubic ft equivalent/day, growth of five per cent quarter-on-quarter and 21 per cent annually. Well performance continued to be encouraging and value-creation initiatives fared well across JVs. The Pioneer JV’s gross production rose three per cent growth, while the Chevron JV recorded six per cent growth.
Reliance Retail
RIL said its retail business performed better than expected, with turnover for the business rising 19 per cent year-on-year to Rs 4,686 crore. For Reliance Retail, net addition of stores during the December quarter stood at 279.
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