RIL records first drop in profit in 9 quarters

At Rs 5,085 crore, standalone net profit falls 7.7%; sales decline 22.5% to Rs 80,196 crore

Weighed down by a steep decline in global crude oil prices, which hurt the profitability of its core refining business, Reliance Industries Ltd (RIL) on Friday reported a 4.5 per cent drop in its consolidated net profit for the quarter ended December 2014.

In line with market expectations, net profit for the quarter was Rs 5,256 crore, compared with Rs 5,502 crore in the year-ago period. The company’s standalone net profit stood at Rs 5,085 crore, down 7.72 per cent and the first such drop in the past nine quarters.

“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 continue and we are cautiously optimistic,” said Chief Financial Officer Alok Agarwal.

Consolidated sales fell 20.4 per cent to Rs 96,330 crore, while on a standalone basis, sales recorded a drop of 22.5 per cent at Rs 80,196 crore.

The company’s gross refining margin (GRM) — earnings from turning every barrel of crude oil into fuel — was $7.3 in the December quarter, against $7.6 in the year-ago period. Analysts had estimated the GRM at $7.5-7.7.

“The GRM indicates higher inventory losses than expected, but it is likely to be a one-off. Therefore, we are not perturbed by it,” said Piyush Jain, equity research analyst, Morningstar India.

The benchmark Singapore GRM improved to $6.3 in the December quarter from $5.4 a year earlier. Refining and petrochemicals, RIL’s core business, contributes up to 95 per cent to the company’s net sales and about 85 per cent to its operating profit.

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 in 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.”

Ahead of its results, the RIL stock closed at Rs 869 on the BSE on Friday, up 0.51 per cent. The stock has underperformed 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 corresponding period of the previous year, 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 year-ago period.

Interest cost stood at Rs 1,137 crore in the December quarter, against Rs 961 crore in the corresponding period of 2013. The rise was due to consolidation of Network 18 Media & Investments Ltd from this year, as well as a higher average exchange rate during the quarter, RIL said.

On an annual basis, revenue from the petrochemicals segment declined 15.2 per cent to Rs 23,001 crore, owing to lower feedstock and product prices. The segment’s earnings before interest and tax (Ebit) declined 2.4 per cent to Rs 2,064 crore on a year-on-year basis. The Ebit margin improved to nine per cent from 7.8 per cent in third quarter of FY14.

In the December quarter, the company’s exports from India fell 21.5 per cent to Rs 58,507 crore from Rs 74,495 crore in the year-ago period. Revenue from the refining and marketing segment decreased 24.1 per cent to Rs 81,777 crore year-on-year.

Production from the company’s D6 block in the Krishna-Godavari basin remained steady at 12 million standard cubic metres a day. The shale gas business faced macro headwinds, with a sharp downturn in commodity prices, especially in the case of oil. Natural gas spot prices dropped about 24 per cent to $3.14 per million British thermal units. Operationally, the business recorded 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 on an annual basis. The Pioneer JV’s gross production increased three per cent, while the Chevron JV recorded six per cent growth.

Reliance Retail
RIL said the performance of its retail business was better than expected, with annual turnover growth of 19 per cent at Rs 4,686 crore. During the quarter, Reliance Retail’s net store addition stood at 279.