RIL profit slips 10% on margin pressure

INDIA’S biggest private company, Reliance Industries (RIL), unveiled its first ever drop in quarterly sales in around six years and its first profit decline in three years on Thursday, hit by a steep fall in petroleum product margins in what its chairman called “one of the most challenging” periods faced by the company.
The Mukesh Ambani-controlled RIL, which runs one of the world’s biggest oil refineries and is also among the world’s biggest petrochemicals producers, reported a 8.75% drop in net sales for the three months to end-December to Rs 31,563 crore – the first decline since the first quarter of 2002-03. Its net profit, excluding exceptional items, fell 9.8% to Rs 3,501 crore during the period compared with Rs 3,882 crore in the year-earlier period, ahead of expectations. ETIG had expected RIL to announce a net profit of Rs 2,739 crore.
Refining margins likely to remain flat till 2010-11
“This was one of the most challenging quarters for Reliance with volatility in prices and margins. Producers and consumers are coming to terms with slower global trade and economic outlook. Reliance performed commendably in this environment, with high operating rates. We also reached an important milestone in start up of the RPL refinery,” said RIL chairman and managing director Mukesh Ambani.
RIL’s keenly-watched gross refining margins (GRM) — the difference between the value of petroleum products and the price of crude oil — for its 660,000 barrel-a-day refinery in Gujarat came in at $10 per barrel, substantially lower than the corresponding period’s $15.04 per barrel, but some $6.4 per barrel higher than the region’s benchmark Singapore complex.
Worldwide refining margins for refineries fell during the December quarter, as the global economic slowdown brought down prices of petroleum products such as gasoline and naphtha. The slump in demand forced some of the world’s big oil companies, including Exxon Mobil, to shut units for seasonal maintenance.
The company, which has been maintaining GRMs better than the Singapore benchmark, said it managed to sustain its margins “primarily on the back of efficient sourcing of crude oil, ability to produce globally accepted products and flexibility in its crude bucket”.
“RIL’s performance exceeded our expectations. This is mainly driven by higherthan-expected revenues from the petrochemical segment and better GRMs. RIL has surprised the market on the upside, hence would have positive impact on the market,” said Amitabh Chakravarty, president for equities at Religare Capital Markets.
RIL shares ended 1.21% at Rs 1,132.95 on Thursday ahead of the results, which were announced after the market closed. The stock slipped 37% in the December quarter, underperforming a 25% drop in the BSE Sensex and a 33% loss in the sector index during the same period.
Analysts said RIL’s earnings drop was temporary and would be reversed in the fiscal fourth quarter, when it is due to start producing 30-40 million cubic metres of natural gas a day in the second half of February. The company’s earnings and sales will see benefits from its new refinery which was commissioned on December 25.
Refining margins are, however, likely to remain flat till 2010-11 due to overcapacity and slower demand growth amid a global economic downturn. RIL’s refinery is almost entirely export-focussed, leaving the company particularly exposed to a drop in global demand for petroleum products.
The net profit fall would be steeper at 57%, if exceptional gains of Rs 4,733 crore in December 2007 — booked by RIL for selling shares of its subsidiary Reliance Petroleum (RPL) — were taken into account. RIL had posted net profit of Rs 8,079 crore, including exceptional gains, in December 2007 quarter.
RIL’s operating profit margins stood at 17% in the quarter, little-changed from 16.9% in the year-ago period, but higher than the 14.6% achieved in the first six months of the year. Interest outgo was higher at Rs 663 crore compared with Rs 241 crore because of a weak rupee. A big chunk of the company’s debt is dollar-denominated.
RIL’s refining business contributed Rs 1,881 crore to its profit before tax of Rs 4,225 crore during the quarter, while the petrochemicals business contributed Rs 1,657 crore.
The company’s cash reserves jumped to more than Rs 28,500 crore, boosted by the conversion of 12 crore equity warrants, which brought in over Rs 15,000 crore to the company in October. RIL said 95% of the reserves was invested in fixed deposits, and the rise in the deposits helped it expand its other income during the quarter to Rs 663 crore from Rs 241 crore in the year-ago period.
For the nine months ended December, RIL’s net profit, excluding exceptional items, increased by 3.4% to Rs 11,733 crore, while its revenues rose 21% to Rs 121,698 crore. Despite a 3.4% rise in refinery throughput to 7.86 million tonnes during the quarter, revenues from this segment dipped 17%. Production of most of its petrochemicals and polymers fell 3%-6% during the quarter, but the fall in revenues was less than 1%. The refining and petrochemicals segments account for 97% of the company’s total turnover. RIL said it has spent Rs 110 crore during the quarter at its Patalganga plant to finance a voluntary retirement scheme for 430 employees.

RIL warrant conversion ups promoter stake to 49%

THE scrip of Reliance Industries (RIL), India’s largest company by market capitalisation, shed over 7.6% on Friday, just before the promoters converted their 12 crore warrants into an equal number of shares. Posttransaction, the promoter group holds 49% stake in the company, with 52% voting rights. This involves an infusion of around Rs 15,142 crore into the company. The shares have a lock-in period of three years.
Despite the warrant conversion, the promoter group’s stake is below the 51.37% it held in the company on June 30, 2008. A close inspection of RIL’s shareholding pattern reveals considerable changes in the promoter group’s holding during the July-September quarter.
Promoters’ stake had gone down from 51.37% to 44.8% — representing a decline of 9.54 crore equity shares — between July 1 and September 30, 2008. After the warrant conversion, this has gone up to 49%.
During the September quarter, nearly 9.42 crore shares were transferred from the promoter group to various RIL subsidiaries and are now classified as public shareholding, but with non-voting shares.
Replying to questions on these transactions, an RIL spokesperson said: “Eight body corporates holding 9.42 crore treasury shares of RIL for the benefit of its shareholders, have since become subsidiaries of RIL.” RIL market cap dips
“AS A RESULT,these shares do not enjoy voting rights and cannot be classified under promoter group. The promoter group companies have not sold any RIL shares for subscribing to warrants,” the RIL spokesperson added.
The spokesperson also said that loans from RIL to these companies were converted to equity share capital. However, he said that he can’t elaborate on the events that triggered the transfer of ownership in these eight body corporates or the price at which they were transferred. The latest shareholding pattern shows eight subsidiary companies holding 9.42 crore shares of RIL. Among these three private limited companies — Reliance Chemicals, Reliance Polyolefins and Reliance Universal Enterprises — hold 9.02 crore shares or 6.2% stake and five other companies together account for the rest 40 lakh shares.
Since the promoter group’s shareholding has fallen by 9.54 crore in the July-September quarter, there still remains some confusion about 12.55 lakh shares, which is the difference between these two figures. Commenting on the change in RIL’s promoter group shareholding, SP Tulsian, an independent investment advisor, said: “Under the earlier conditions, the conversion of warrants would have taken the promoters’ holding in RIL beyond 55% triggering an open offer under the Sebi guidelines.” It seems the promoters wanted to avoid such a situation.
In the past 10 trading sessions, RIL has lost nearly 15% of its market capitalisation wiping out nearly Rs 44,000 crore of investor wealth. The price-to-earnings ratio (P/E) of the scrip has come down to 12.8, a level last witnessed in June 2006.

High user charges take the sheen off new airports

User Fees,Airport Charges Make Flying A Costly Affair

EXPECTATIONS of air travellers that privatisation of Indian airports will bring in efficiency and make air travel cheaper seem to be completely misplaced. User fees and recovery of infrastructure charges by concessionaires on fuel, baggage handling will be passed on to passengers, thereby increasing the cost of air travel. After the muchdiscussed user development fee of Rs 675 that every passenger using the new Bangalore airport will have to pay, the GMR group-promoted Hyderabad airport has written to oil companies saying it will impose throughput charges of Rs 2,170 per KL of aviation fuel.

Oil companies have confirmed that they will pass on the cost to airlines. Airline executives said they would resist any increase in costs because margins in the business are already wafer-thin. The Federation of Airlines plans to take up the issue with the ministry of civil aviation. However, if they were forced to pay the charges, airline sources said they would have to pass them finally on to passengers. Incidentally, airlines are already fighting with airports on a similar increase in ground handling charges. Domestic airlines already collect Rs 1,600 as fuel surcharge on every ticket. This charge has been kept constant even though fuel prices have declined in January.

The confusion on how much to charge on each of these counts is compounded because of the lack of an airport regulator to decide on the issue. The proposed AERA (Airport Economic Regulatory Authority) Bill is slated to be presented in Parliament in the Budget session. The two new airports in Hyderabad and Bangalore will, however, be open for business in March.

The aviation fuel station at the Hyderabad airport, being built by GHIAL, owes its existence to an open access policy that allows every eligible oil company to market fuel. Throughput charges cause heartburn

ALMOST all oil refining companies, including RIL, MRPL and Essar Oil, had expressed interest in operating at this airport. But the higher throughput charges have come as a shock, said one private refiner who did not wish to be identified. GMR Group spokesman clarified: “No final decision has been taken on the fuel pricing yet.’’ However, the e-mail sent to the oil companies and available with ET details the proposed charges. The communication states that GHIAL plans an ‘infrastructure recovery charge’ of Rs 1,500/KL and throughput fee of Rs 670/KL. A service tax of 12.3% will be extra. The new airport is scheduled to be opened on March 16.

There is no information yet from the other private airport, which is being constructed by Siemens-led consortium in Bangalore. The BIAL airport spokesperson said the charges are still being worked out. However, oil companies maintained that a similar increase could be on the cards. A consortium of oil PSUs — Indian Oil and Indian Oil Tanking — is putting up aviation fuel facilities at this airport and they will be recovering the charges subsequently.

“Worldwide, throughput charges are imposed by airport authorities to recover the capital expenditure of setting up the infrastructure over a period of time. But at these high rates, GHIAL’s capital costs will be recovered in just 3-4 years. After that, it will be just pure profits to the airport owner,” said an airline company official.

While throughput charges at major airports are currently not very high, the tendering process for upgrading airports in Chennai and Kolkata had revealed that players were willing to pay up to Rs 1,200 per thousand litres of aviation fuel. However, the aviation industry appealed to the ministry against this method of deciding the throughput charges.