RIL Q4 net rises to Rs 5,631 cr

Tags: News

Shale gas business and retail operations drive company’s operating income

Reliance Industries, the country’s largest oil and gas explorer, reported a marginal 0.8 per cent rise in net profit to Rs 5,631 crore for the fourth quarter of financial year 2013-14 as higher depreciation and lower other income impacted the results. However, the company has performed better on all other parameters with overall sales improving by around 13 per cent.

Sales for the fourth quarter rose by 12.9 per cent to Rs 97,807 crore on the back of strong performance in refining and petrochemical segments. On consolidated basis, the shale gas business and retail operations drove the company’s operating income.

The refining segment saw strong growth, with the demand for transport fuel moving up in the last two quarters. The gross refining margin for the fourth quarter was lower at $9.3 per barrel, compared with $10.1 per barrel in the same quarter last year, but was higher from $7.6 per barrel in the third quarter. It stood at $8.1 per barrel for the full year 2013-14. RIL saw a premium of $2.5 per barrel over the Singapore refining margins, which trailed at $6.5 per barrel during the fourth quarter.

The total revenue from the refining business, which constitutes around 85 per cent of RIL’s turnover, rose by 12.5 per cent at Rs 87,624 crore on the back of strong light-heavy differentials and strong demand from the overall transport sector. “The EBIT for the refining business at Rs 3,954 crore and EBIT margin at 4.5 per cent were one of the highest in the decade,” said Alok Agarwal, CFO of RIL.

During the financial year, the benchmark Singapore complex margin averaged at $5.9 per barrel, compared with $7.7 per barrel in financial year 2012-13. “Overall, the environment remained supportive but marginally subdued as compared to the previous year. However, the middle distillates which RIL manufactures in large numbers drove the complex refining margins. We expect the demand in this segment to continue. Also, due to complex nature of our refining, the light-heavy differential would continue to support us in coming quarters,” said Agarwal.

He also said the consolidated profit of the company was higher compared to standalone due to 35-40 per cent growth in the shale gas business and around 34 per cent growth in the retail business during the full year, which also reflects the growth in the fourth quarter. “The investment in shale gas business is now almost equivalent to our India business with around $7 billion of investment. We have an operating income of $700 million from the shale gas assets which is almost same from the Indian operations and this is likely to increase at the same pace for the coming quarters,” said Agarwal.

“The retail business is now in the black, with the company focused on scaling with a frugal approach. During the quarter, the company had an earnings before interest tax depreciation and amortisation (EBITDA) of Rs 90 crore, which was slightly lower than the third quarter or sequentially, but has moved up around 30 per cent over the fourth quarter of last year,” said Agarwal.

Deven Choksey, managing director of Mumbai-based brokerage KR Choksey, says the overall business of Reliance has fared on predicted lines. When the Singapore GRMs are lower, RIL has given a better margin largely due to $5.1 per barrel against $4.6 per barrel of light-heavy differential in the fourth quarter, and also due to higher mix of heavy crude in their portfolio which has led to higher margins due to better complexity of their refineries. However, “What has affected RIL’s business in terms of lower profitability is higher depreciation of Rs 200 crore due to devaluation of assets, and second, due to lower other income by around Rs 200 crore due to deployment of capital in the telecom business and the expansion of petrochemical business,” said Choksey. He expects the company’s refining margins to grow to $11.5 per barrel in financial year 2014-15, as the Singpaore refining margin (SRM) is expected to grow to $8 per barrel this year. RIL gets around $2.5-3 per barrel premium on the SRM.

The petrochemicals business has also continued to do well with the segmental revenue rising 9.9 per cent to Rs 24,343 crore during the quarter. The EBIT margin was same as in Q4 FY13 at 8.6 per cent. However, production was marginally lower at 5.3 million tonne compared with 5.4 million tonne in Q4 of last year.

The domestic oil and gas segment has continued to trail the overall business with both the revenues and production being lower during the quarter, compared with the same quarter last year. Revenues for the quarter fell by 11.3 per cent to Rs 1,417 crore, while the segment EBIT was lower by 17.8 per cent. Margins dropped to 26.7 per cent compared with 28.8 per cent in the same quarter last year.

The company has stabilised its production from the KG-D6 fields in Q4 and expects the overall activities taken to improve the water ingress and new wells in the area would improve production from the block. During the quarter, KG-D6 block produced around 13-14 million standard cubic metres per day (mscmd) of gas, higher than the third quarter when it dropped to 12 mscmd from the peak production of 60 mscmd in 2011.

The company is net debt-free with total outstanding debt as of March 31, 2014 of Rs 89,968 crore compared with Rs 72,427 crore last year.

The total cash and cash equivalent for the period is around Rs 88,190 crore.

According to Agarwal, the company also has a capital expenditure plan of $12-15 billion in the petrochemicals business, of which 30 per cent has been spent while the remaining 70 per cent would be spent in next 18-24 months. In shale gas, the company has been spending around $700 million every year and would continue to do so.


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