After 5 yrs, RIL back to double-digit growth

FY16 PAT zooms 17.2%, fourth-quarter net grows 16% as petrochem and refining margins report healthy growth

Elephants can dance, going by Reliance Industries’ (RIL) performance in FY16. After five years, the country’s largest private sector company by revenue has reported double-digit growth in earnings. RIL, battling headwinds in most of its businesses, has exited FY16 with 17.2 per cent growth in earnings from the previous year.

The earnings trajectory has been driven by strong growth in both the refining and petrochemical businesses. At $10.8/barrel, RIL’s gross refining margin (GRM) has hit a seven-year high and throughput has touched a record 69.6 million tonnes (mt).

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Though crude oil prices are down 45 per cent compared to FY15, RIL’s margins and profits have not taken a hit. The company’s seen several earnings upgrades in the past couple of quarters, which is why it managed to beat estimates only marginally in the quarter ended March.

The quarterly earnings show was driven by strong margin expansion, and lower operating costs and tax rate. Consolidated net profit grew 15.9 per cent year-on-year (YoY) to Rs 7,398 crore, even as revenue declined 10.7 per cent to Rs 60,252 crore in the March quarter. According to Bloomberg’s analyst poll, the company was estimated to report a net profit of Rs 7,125 crore.

Other income declined 19 per cent to Rs 1,758 crore in the March quarter.

Analysts claim that RIL was able to beat the Street’s earnings estimates as operational expenditure in the refining segment came down to $2.2/barrel from $2.6/barrel in the previous quarter.

Despite the additional capacity coming on stream, the company has not seen any shutdown activity during the quarter, which also improved utilisation levels of 112 per cent during the quarter.  Consolidated interest cost of Rs 813 crore also surprised positively as analysts were factoring in a higher amount due to rupee depreciation. All these factors aided profit growth during the quarter.

Commenting on the company’s performance, Mukesh Ambani, chairman and managing director, RIL, said, “FY2015-16 has been a year of outstanding achievement for our downstream hydrocarbon businesses, notwithstanding persisting global economic uncertainty. Refining and petrochemicals delivered record operating and financial performances. Our refineries sustained double-digit GRMs and record levels of utilisation through the year." The new financial year is critical for Reliance as most of its new capacity goes on stream. The company has invested $30 billion on capacity expansion and this is expected to contribute to earnings in the current year.

Analysts believe the capacity addition in both petchem and refining capacity will come at an apt time when margins are turning around. Over the last few years, RIL’s earnings are being driven by its core businesses - refining and petrochemicals.

In the March quarter, revenues from the refining and marketing segment decreased by 14.8 per cent YoY to Rs 48,064 crore ($7.3 billion), while Ebit (earnings before interest & tax) increased by 30.4 per cent YoY.  RIL’s GRM in the March quarter was $10.8/bbl as against $10.1/bbl in corresponding quarter last year. However, sequentially refining margins fell 6.1 per cent to $10.8/barrel. Strong gasoline and naphtha cracks, robust demand growth and favourable crude markets helped boost refining margins. The segment’s Ebit was supported by higher crude throughput of 17.8 mmt and cheaper crude the company has been sourcing from Basra.

Nitin Tiwari, oil and gas analyst, Antique Stock Broking, says, “RIL’s operating income was aided by slightly better refining margin. We had expected it to be at $10.5/barrel but it came in at $10.8/barrel. A $0.3 a barrel itself can add about Rs 200- 250 crore to the overall Ebitda.” The petrochemicals business too reported healthy growth in margins during the March quarter.  Petrochemicals segment Ebit increased by 35.4 per cent YoY to Rs 2,713 crore ($409 million) with strength in polymer deltas, robust polymer demand and higher volumes in the polyester chain.

For the petchem segment, while the margins were down 60 basis points (bps) sequentially to 13 per cent, Ebit margin improved 380 bps.  Among other businesses, retail grew at a healthy clip over the March 2015 quarter. Revenues grew 20.7 per cent to Rs 5,781 crore in March 2016 quarter, while segment Ebit margin inched up 10 bps to 2.3 per cent.  The business reported highest ever PBDIT (profit before depreciation, interest, and taxes) of Rs 891 crore in FY16. US shale gas business continued to be weak in the December 2015 quarter, with revenues as well as Ebit margin shrinking over the March 2015 quarter.