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No fireworks were expected from Reliance Industries in the second quarter, as refining margins came under pressure globally and input costs rose. Analysts were expecting RIL's year-on-year net profit growth to be close to 1%.
However, marginal the beat, the company has managed to surprise the Street with its revenues and profit numbers. And the profit beat has not been driven by other income.
Jagannnadham Thunuguntla of SMC Global Securities says this is an encouraging sign as the core business has started to contribute more to profitability.
Despite continued volatility in refining and petrochemicals business on a sequential basis, year-on-year sales grew 14.2% and net profit grew 1.5%, driven largely by petrochemicals and refining. Even though other income declined by nearly Rs 500 crore sequentially, RIL's net profit rose 2.6%.
The thing to note about this quarter is that operational metrics have improved and have, thus, driven the bottomline. Other income contributed to 38% of its profit before tax in Q1, but its share has fallen to 30% in Q2.
The performance of the refining segment was expected to hurt profitability in Q2, as Singapore GRMs had plummeted to a 12-quarter low of $5.4/barrel during the period. Analysts expected RIL's Q2 GRMs to come in well below the $8.4/barrel seen in the first quarter. The stellar performance of the petchem business has come to save the day.
The petchem segment's revenues grew 13% sequentially and annually to Rs 24,892 crore. With EBIT margin rising to 10% in Q2 from 7.9% last year, the segment's EBIT rose 44% annually to Rs 2504 crore.
The stellar performance of the petchem business was largely driven by higher prices, which accounted for 7.4% growth in revenue. Higher prices and stable volumes helped the company deliver supreior growth.
Even though, utilisation levels across the globe improved, RIL still managed to run its refineries at higher levels. The company processed 17.7 million tonnes (highest ever quarterly throughput) of crude and achieved utilization rate of 114%.
In comparison, average utilization rates for refineries globally during the same period were 86.7% in North America, 78.7% in Europe and 85.2% in Asia. Higher utilization levels helped protect the downside from lower margins. The company has reported GRMs of $7.7/barrel in Q2. The refining and marketing segment's revenues rose 20% sequentially and 16.2% annually to Rs 97,456 crore.
However, the segment's EBIT declined 10% annually and rose 7.6% sequentially. The refining segment's EBIT margin also declined to 3.3% in Q2 from 3.6% in Q1 and 4.2% last year.
Operationally, RIL's core businesses of may improving, but the market is still eyeing an improvement in the exploration business. Compared to last year, revenues from this segment declined 35% and EBIT declined by 59% in Q2. Analysts say that a turnaround of this segment is crucial for the company.
