The 21.2% fall in the March quarter profits of Reliance Industries was in line with Street expectations. However, it’s not just the quantum of earnings, but even the quality of earnings that is seen deteriorating. Other income stood as the single-biggest contributor to the bottom line. This means that the investors need to be worried about the value of their investments in future.
RIL’s March quarter numbers were characterised by a fall in profitability across the board. All its three main pillars of growth — petrochemicals, refining and oil & gas — saw declining profits and depressed margins. Still the fall in its bottom line was cushioned to a certain extent thanks to the emergence of a new segment — other income. However, this underlines the company’s difficulty in finding suitable avenues of investment and future growth. Other income at . 2,295 crore for the March quarter represented over 42% of RIL’s pretax profits, which was its historical high. When compared to the three main segments, other income was higher than the pre-interest-&-tax profits of each of petrochemicals, refining and oil and gas segments.
The company is also running its plants at peak capacity, which is reducing its incremental revenue growth. During the March quarter, RIL’s total revenues at. 85,182 crore were 17.2% higher yo-y, which was the lowest growth rate for RIL in FY12. In the first three quarters, the company grew at an average 39.5%. RIL’s refineries, which are the biggest revenue generator for the company, worked at 109% capacity utilisation through FY12 to process a record high 67.6 million tonnes of oil.
Since the results were in line with most of the street estimates, little impact is expected on the scrip when the markets open on Monday. However, the medium-term outlook doesn’t look any brighter. A number of analysts may be preparing to downgrade the company or reduce their price targets depending on the management inputs. Dhananjay Sinha, co-head of institutional research at Emkay, mentioned, “Over a period of time, RIL share price faces downside risks, while the upside potential remains marginal. We will be reducing our target price of . 879 on the company.”
RIL’s March quarter numbers were characterised by a fall in profitability across the board. All its three main pillars of growth — petrochemicals, refining and oil & gas — saw declining profits and depressed margins. Still the fall in its bottom line was cushioned to a certain extent thanks to the emergence of a new segment — other income. However, this underlines the company’s difficulty in finding suitable avenues of investment and future growth. Other income at . 2,295 crore for the March quarter represented over 42% of RIL’s pretax profits, which was its historical high. When compared to the three main segments, other income was higher than the pre-interest-&-tax profits of each of petrochemicals, refining and oil and gas segments.
The company is also running its plants at peak capacity, which is reducing its incremental revenue growth. During the March quarter, RIL’s total revenues at. 85,182 crore were 17.2% higher yo-y, which was the lowest growth rate for RIL in FY12. In the first three quarters, the company grew at an average 39.5%. RIL’s refineries, which are the biggest revenue generator for the company, worked at 109% capacity utilisation through FY12 to process a record high 67.6 million tonnes of oil.
Since the results were in line with most of the street estimates, little impact is expected on the scrip when the markets open on Monday. However, the medium-term outlook doesn’t look any brighter. A number of analysts may be preparing to downgrade the company or reduce their price targets depending on the management inputs. Dhananjay Sinha, co-head of institutional research at Emkay, mentioned, “Over a period of time, RIL share price faces downside risks, while the upside potential remains marginal. We will be reducing our target price of . 879 on the company.”
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