RIL reported healthy earnings for the September quarter, which were more or less on expected lines. The fully-integrated business model enables the company to expand margins in one business, even if others suffer. However, with its price-toearnings valuation at 19.4, which discounts most of the existing positives, the share price may not react much to the results on Monday.
Since the company’s two mega-projects — SEZ refinery and KG basin gas — were being ramped up in the corresponding period last year, its double-digit profit growth on a year-on-year (y-o-y) basis for the past few quarters was well expected. However, this is likely to taper off, going forward, as base effect comes into play. Thus, considering just y-o-y growth numbers in analysing the performance could paint a misleading picture, and a view of sequential growth patterns becomes necessary.
The September quarter shows stagnation on a sequential basis, which could be a cause of concern for investors. Compared to the June 2010 quarter, the company’s operating profit and net profit were almost flat. Also, the paltry 1.5% qo-q growth in bottomline came mainly from reduction in depreciation charge.
The company continues to run its refineries significantly over their nameplate capacities to make the production more costefficient. During the first half, the capacity utilisation rate stood at 109%, substantially higher than the global averages during the same period. At the same time, the rising differential between light and heavy crude oils helped the company earn higher margins.
Although the company holds a few triggers for long-term earnings growth, it could stagnate in coming quarters. Its petrochemicals business will continue to face pressure — particularly polyethylene and polypropylene — due to higher production from the Middle East. The oil & gas business faces growth uncertainties as the next phase of ramp up of KG gas production to 80 mmscmd is delayed. Refining industry’s growth remains greatly dependent on the continuing global economic growth, while inventory levels remain quite high.
Since the company’s two mega-projects — SEZ refinery and KG basin gas — were being ramped up in the corresponding period last year, its double-digit profit growth on a year-on-year (y-o-y) basis for the past few quarters was well expected. However, this is likely to taper off, going forward, as base effect comes into play. Thus, considering just y-o-y growth numbers in analysing the performance could paint a misleading picture, and a view of sequential growth patterns becomes necessary.
The September quarter shows stagnation on a sequential basis, which could be a cause of concern for investors. Compared to the June 2010 quarter, the company’s operating profit and net profit were almost flat. Also, the paltry 1.5% qo-q growth in bottomline came mainly from reduction in depreciation charge.
The company continues to run its refineries significantly over their nameplate capacities to make the production more costefficient. During the first half, the capacity utilisation rate stood at 109%, substantially higher than the global averages during the same period. At the same time, the rising differential between light and heavy crude oils helped the company earn higher margins.
Although the company holds a few triggers for long-term earnings growth, it could stagnate in coming quarters. Its petrochemicals business will continue to face pressure — particularly polyethylene and polypropylene — due to higher production from the Middle East. The oil & gas business faces growth uncertainties as the next phase of ramp up of KG gas production to 80 mmscmd is delayed. Refining industry’s growth remains greatly dependent on the continuing global economic growth, while inventory levels remain quite high.
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