RIL net profit declines 5.7% but Street happy

Gross refining margin at $9.5/barrel improves sequentially

Reliance Industries, India’s highest valued company, on Monday reported a 5.7 per cent decline in its second quarter net profit but met Street estimates on improved refining margins and higher treasury gains. Net profit was Rs 5,376 crore for the quarter ended September 2012 against Rs 5,703 crore in the corresponding period a year ago. Though the gross refining margin was lower at $9.5 per barrel for the quarter against $10.1 a year ago, it was impressive compared to the previous quarter’s $7.6 per barrel.

Chairman and Managing Director Mukesh Ambani said business and financial performance for the first half of FY 2012-13 had been satisfactory, despite weakness in global economies and the resultant margin environment. “On a sequential quarter basis, net profit for the quarter was up 20 per cent at $1 billion,” he added. “There is a global trend of a rise in gross refining margins on the back of buoyant crude oil prices and a demand-supply mismatch for refining refining capacities,” said Alok Ranjan, head, portfolio management service, at domestic brokerage Way2Wealth.

Reliance reported gross revenue of Rs 93,265 crore in the quarter, a 15.4 per cent jump from the year-ago period. This includes Rs 83,878 crore from refining and Rs 22,058 crore from the petrochemicals business. Ustream oil and gas exploration reported Rs 2,254 crore revenue, down from Rs 3,563 crore a year ago. The gross revenue figures also include inter-segment transfers.

Reliance’s two adjacent refineries at Jamnagar in Gujarat have the capacity to process 1.24 million barrels of crude oil a day. The plants are capable of turning cheap, low-quality crude oil to high-value products.

Reliance sold stakes in KG-D6 and 20 other blocks to BP Plc, Europe’s second-biggest oil producer by market value, as Ambani sought the London-based company’s technology to drill and produce gas from the deepwater area. BP, which completed the $7.2-billion deal a year ago, and Reliance are preparing a new plan to produce gas from the biggest deposits in the block and develop adjoining areas.

Devang Mehta, vice-president and head equity sales at Anand Rathi Financial Services, said he expected the market to take the result positively. However, he said the petrochemical business still seemed under pressure and shale gas, which looked promising, had too small a contribution to have a material impact on the company’s consolidated earnings. “It’s a good beginning, but the market is still not sure about RIL’s long-term earnings trajectory. We would also like the company to use its cash pile to make acquisitions in its core business of oil & gas and petchem,” he said.

The company’s stock gained 0.53 per cent to Rs 823.2 a share on the Bombay Stock Exchange on Monday. The company announced its result after market hours.