The Hindu Business Line : Reliance: High refining margins, prices drive growth

EXTRAORDINARILY high refining margins and strong petrochemical prices have combined to show a remarkable growth in Reliance Industries' bottomline for the third quarter.

The main push to growth appears to have come from the oil refining business where refining margins touched historic levels of close to $10 per barrel during the last quarter.

There are a few notable trends in the results declared by the company:

The company's third quarter post-tax earnings of Rs 2,091 crore is 40 per cent of its total earnings of Rs 5,280 crore during the first nine months of this fiscal. This is proof of how good the last quarter was for the company.

The post-tax earnings of the first nine months is higher than the earnings of Rs 5,160 crore for the whole of 2003-04.

The share of the refining business in profit before interest and tax has shot up to 58 per cent from 42 per cent in the same period last year while that of the petrochemicals business has dropped sharply to 31 per cent from 52 per cent.

Petrochemical margins appear to have come under some pressure, mainly due to the sharp rise in naphtha prices.

Growth in the petrochemicals business appears to have come mainly from higher realisations due to strong prices rather than due to a spurt in demand. This is evident from the fact that demand for polymers — polypropylene, poly vinyl chloride and polyethylene — actually fell 3 per cent, while that of fibres grew by a marginal 2 per cent only.

One reason for the fall in demand despite growth in user industries could be that downstream processors have drawn down their inventory and are waiting for prices to fall before replenishing it.

Reliance has dropped prices on polymers during the first fortnight of this month following lower demand and rising inventory levels.

The company has optimised on price realisations by focusing on speciality products that fetch a premium over the ordinary grades of fibre.

The current quarter may prove to be less bounteous than the last one. While oil prices have retreated from the peaks registered during the middle of last quarter, the company has dropped prices on petrochemicals following damp demand conditions. The restructuring of duty structure on oil products under contemplation by the Government is another uncertain variable.

However, while prospects for the company appear good the same cannot be said for the stock though which is subdued under the impact of the ongoing tussle between the Ambani brothers.

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