RELIANCE Industries’ (RIL) earnings rarely disappoint investors, but it did in the March quarter, blame it on lower refining margins. But the prospects are getting brighter, with rising oil and gas production. Also, the refining margins are climbing, though they remain way below the peak.
The exploration and petrochemicals business helped it more than double the revenues for the quarter, but the lower profitability from refining and other businesses led to a less-than-proportionate gain in earnings. Net profit for the March quarter rose to Rs 4,710 crore, from Rs 3,630 crore. That was short of the Rs 5,100 crore which analysts were estimating. Net sales more than doubled to Rs 57,570 crore. With about half its revenues coming from exports, the sluggish demand in global markets depressed the profitability in the refining business. The year gone by proved to be an exceptionally bad year for the refining industry, in stark contrast with a great year in FY09. RIL earned $7.5 margin a barrel, the difference between its cost of crude and the refined fuel compared with $9.90 a barrel a year earlier. But things are turning for better.
“I can go so far as to say that looking at the improving economic environment GRMs in FY11 will be better than FY10,” RIL’s CFO Alok Agrawal said in a post-results press conference. The earnings before interest and taxes, or EBIT, margins shrunk in almost all businesses. In the refining & marketing segment, they fell to 3.9%, from 10.8%. In oil & gas, it shrunk to 39.4% from 64% a year earlier and in petrochemicals, though, higher from the previous quarter, earnings fell to 14.4%, from 17.6% a year earlier.
With the twin benefit of doubled volumes and improved margins, it can improve the profitability this fiscal. One key advantage RIL enjoys is the spare capacity. The new SEZ refinery with a nameplate capacity of 580,000 barrels per day has been successfully tested to run at 700,000 barrels. RIL’s recent tie-up with Atlas Energy in the US for shale gas marks a significant growth area. The company spent almost the entire FY10 in consolidating and optimising its retail business. The company also has plans to ramp it up in coming years.
The exploration and petrochemicals business helped it more than double the revenues for the quarter, but the lower profitability from refining and other businesses led to a less-than-proportionate gain in earnings. Net profit for the March quarter rose to Rs 4,710 crore, from Rs 3,630 crore. That was short of the Rs 5,100 crore which analysts were estimating. Net sales more than doubled to Rs 57,570 crore. With about half its revenues coming from exports, the sluggish demand in global markets depressed the profitability in the refining business. The year gone by proved to be an exceptionally bad year for the refining industry, in stark contrast with a great year in FY09. RIL earned $7.5 margin a barrel, the difference between its cost of crude and the refined fuel compared with $9.90 a barrel a year earlier. But things are turning for better.
“I can go so far as to say that looking at the improving economic environment GRMs in FY11 will be better than FY10,” RIL’s CFO Alok Agrawal said in a post-results press conference. The earnings before interest and taxes, or EBIT, margins shrunk in almost all businesses. In the refining & marketing segment, they fell to 3.9%, from 10.8%. In oil & gas, it shrunk to 39.4% from 64% a year earlier and in petrochemicals, though, higher from the previous quarter, earnings fell to 14.4%, from 17.6% a year earlier.
With the twin benefit of doubled volumes and improved margins, it can improve the profitability this fiscal. One key advantage RIL enjoys is the spare capacity. The new SEZ refinery with a nameplate capacity of 580,000 barrels per day has been successfully tested to run at 700,000 barrels. RIL’s recent tie-up with Atlas Energy in the US for shale gas marks a significant growth area. The company spent almost the entire FY10 in consolidating and optimising its retail business. The company also has plans to ramp it up in coming years.
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