Impact of lower refining margins and a drop in gas production

Reliance Industries Ltd. (RIL), on Friday, reported a 21 per cent fall in its net profit for the first quarter of 2012-13 at Rs.4,473 crore amid lower refining margins and a drop in gas production.

The turnover rose 13.4 per cent to Rs.94,926 crore which, a company statement said, was a result of higher prices.

The profit before depreciation, interest and tax declined by 21.4 per cent to Rs.8,651 crore. Exports rose 6.8 per cent to Rs.55,261 crore.

In a statement, Mukesh D. Ambani, Chairman & Managing Director, said, “RIL has improved its earnings profile as profits from operations were higher on a sequential basis on the back of volume growth in the refining business.

“We have commenced our next phase of capital investments in the refining and petrochemical segments to enhance earnings and value of our core energy business.” RIL had cash and cash equivalents of Rs.70,732 crore as on June 30, 2012.

Oil and gas business

Revenues from oil and gas business fell 35.6 per cent to Rs.2,508 crore but earnings before interest and tax (EBIT) margin was 38.8 per cent (37.8 per cent). The KG-D6 field produced 0.9 million barrels of crude which was a third lower.

For the Panna-Mukta and Tapti fields, the plan in the current year is to commence drilling on three extended reach development (ERD) wells at Mid-Tapti field from which RIL expects gas to flow in the second half of the year.

Refining

Refining and marketing revenues grew 16 per cent to Rs.85,383 crore but the company reported a lower gross refining margin (GRM) of $7.6/bbl ($10.3/bbl) which is a measure of profitability. EBIT margin, too, was lower at 2.5 per cent (4.3 per cent).

Petrochemicals

Petrochemicals revenue grew 18.9 per cent to Rs.21,839 crore. While higher prices accounted for 10.8 per cent, higher sales volume accounted for 8.1 per cent of the increase. However, EBIT margins dropped to 8 per cent (12.1 per cent) which the company attributed to lower polyester and polyester intermediates deltas, “which was partially offset by increase in delta of polymer products.”

RIL’s organised retail business saw a 42 per cent growth in turnover at Rs.2,269 crore It currently operates over 1,300 stores across 120 cities.

Analysts said the drops in profit, margins and gas production were along expected lines.

Organised retail

G. Chokkalingam, Group Chief Investment Officer, Centrum Wealth Management, said, “the problem has been the inability to produce from KG-D6 field. Gas prices have been frozen till 2014, after which there will surely be a bounce back. The company can exploit satellite fields for the long-term, and, as it earlier indicated, there is a huge opportunity in organised retail which can easily shore up top line in the next couple of years.’’

In June, Mr. Ambani told shareholders that RIL was targeting revenues of Rs.40,000-50,000 crore from organised retail business over the next 3-4 years.

Keywords: gas productionRIL

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