Better refining margins, forex gains and huge treasury income, totaling 38 percent of pretax profit helped Reliance Industries report a full 18.9 per cent spike in its June quarter net profit at Rs 5,352 crore even though its total revenue declined 4.6 per cent. This is the third consecutive rise in quarterly profit for the company that runs the world’s largest refinery complex, even as revenue from domestic gas sales fell revenue from its oil and gas business fell 42 per cent after weakening nearly 39 per cent in the previous quarter and so was output.
However, overseas assets chipped in to compensate for this as its shale gas business in the US reported an 84 per cent rise in revenue. In terms of earnings per share, the net profit rose Rs 16.6 in the reporting quarter from Rs 4,503 crore or Rs 13.8 per share a year earlier, the company said here late this evening. The other income of the company soared to Rs 2,535 crore during the reporting period from Rs 1,904 crore a year ago, on the back of treasury income and sale investments awhile its cash balance jumped to Rs 93,066 crore from a tad over Rs 83,000 crore as of March 2013. Significantly, the other income, mainly treasury-related gains, accounted for around 38 per cent of the pretax profit for the quarter.
Announcing the numbers, chief financial officer Alok Agarwal told reporters that “the numbers are better than their own expectations,” and attributed the good set of numbers to “the massive improvement in its overseas shale gas business which soared 84 per cent year-on-year to $214.5 million.” The better-than-expected profit numbers come despite a 4.6 per cent drop in turnover to Rs 90,589 crore from Rs 94,927 crore a year ago, which Agarwal termed as on expected lines as “there was an overall fall in volumes in both the petchem as well as refining business during the quarter.” Joint-CFO V Srikant chipped in saying “also there one crude distillation unit (CDU) was shut down for almost a week for maintenance during the quarter. Coupled with this was the overall drop in oil prices during the period.”
Agarwal further said at 37.7 Bcfe shale gas production, a growth of 71 per cent, in Q1, this is “almost as big as the gas business of the company in the domestic market,” which according to the latest government data slumped to 15.32 million cubic metres per day from its flagship KGD-6 wells. Reliance, which operates the world's largest refining complex at Jamnagar in Gujarat, saw the core petrochemical margins improved while retail revenue rose 53 per cent. While gross refining margins improved by 80 cents to $8.4 per barrel from $7.6 a barrel during the quarter, Agarwal said.
However, gas production at the flagship KG-D6 field slumped a steep 53 per cent to 49.2 billion cubic feet or 15.32 million cubic metres per day. RIL had produced about 33 mmcmd in April-June quarter last year and 49 mmcmd in Q1 of 2011-12. "Fall in production is mainly attributed to geological complexity, natural decline in the fields and higher than envisaged water ingress," Agarwal said. Production at the Krishna Godavari basin fields has since dropped 14.02 mmcmd this month and the Directorate General of Hydrocarbons (DGH) predicts it will not rise before 2016-17. On the RIL numbers energy analyst at Religare Institutional Research Nitin Tiwari in a noted said “RIL's net is in line with street expectations, but Editda at Rs 7100 crore is disappointing. But other income higher than estimates makes up for the disappointment on this front. “Petchem margins at 8.6 per cent QoQ is a disappoint too, while GRMs are per expectation at USD 8.4 per barrel." "Reliance achieved strong results during the first quarter of FY14, while investing in projects that will provide sustainable advantage for a longer period," company chairman and managing director Mukesh Ambani said in a statement.
Ahead of the results announcement, RIL shares hit a six month high of Rs 923.15 on the BSE but closed a tad down at Rs 923.15, a gain of 0.67 per cent while the benchmark Sensex notched up just 0.11 per cent losing more than 100 points from day’s high on profit booking. RIL shares have gained 10 percent so far this year, outperforming a 3.7 percent rise in the Sensex. Agarwal said the 77 per cent revenue come from refining business, 20 per cent from petrochemicals and 3 per cent from oil and gas.
However, the petrochem business reported better than expected numbers this time around with polyester volume jumping 15 per cent and polymer volume rising 12 per cent in the quarter, Srikant said. Reliance is poised to benefit from a recent government decision to double domestic gas prices from April 1, 2014, a measure the company had set as a precondition for any further investments in gas production.
While refusing to speak anything on this gas price hike, which has landed in a big controversy, the company said this is in the right direction as at a price below USD 7 a unit, gas exploration is not viable across the globe. On the capex plan, Agarwal said "in the oil and gas business, we have capex approval for this fiscal, which will allow us to do everything to stabilise production at D6. “For any new development, it will take us at least three years to start production. It's a long cycle," he added.
Refining revenue during the quarter fell marginally to Rs 81,600 crore, while revenue from petrochemicals was almost flat at Rs 21,950 crore. Exploration and production revenue grew 42 per cent to Rs 1,454 crore Ebitda margins decline to 24.2 per cent from 38.8 per cent, while refining and marketing revenue rose 4.6 per cent to Rs 81,458 crore and Ebitda margins grew to 3.6 per cent from 2.5 per cent. Petchem revenues rose 0.5 per cent to Rs 21,950 crore with its Ebitda margins rising to 8.6 per cent from 8 per cent a year ago. RIL had in April announced a Rs 1.5 trillion investment plan in new projects over the next three-four years.
Performance in Q1, Ambani said, reflects "higher operating rates and embedded options in crude sourcing and product placement, given the size and scale of the refining business." On the impact of the rupee fall on its debt, Srikant said this was a little over Rs 5,300 crore over the past quarter. As of the June quarter, the company had a debt of Rs 80,307 crore, while its cash balance rose to Rs 93,066 crore during the same period, making it the only company with so much liquidity.
However, Srikant said net-net, RIL is debt-free on a net basis. Robust growth in petrochemical products demand augurs well for our biggest ever expansion programme, Ambani said adding retail has seen "remarkable" progress with a 53 per cent growth in revenues in Q1 to Rs 3,474 crore. Sequentially, the company's performance was not good with a 4.2 per cent drop in net profit over Rs 5,589 crore profit in January-March quarter.
Debt soared to Rs 80,307 crore at the end of Q1, up from Rs 72,427 crore at the beginning of the fiscal. At quarter end, it had a cash pile of Rs 93,066 crore, making the company debt free on a net basis. Cash in hand increased from Rs 70,252 crore at the end of March.The company, which has invested an aggregate of $6 billion in three shale gas projects in US, saw revenues from its American operations rose 84 per cent to $214.5 million.
Its revenue from oil and gas business fell 42 per cent to Rs 1,454 crore and segment earnings before interest and tax by 64 per cent to Rs 352 crore. Reliance's twin refineries at Jamnagar process slightly less crude oil at 17.1 million tonne and saw segment revenue drop 4.6 per cent to Rs 81,458 crore. But the segment Ebitda was up 38.5 per cent to Rs 2,951 crore.
