Refining comeback buoys RIL

The strong comeback of the refining business has saved Reliance Industries (RIL) the blushes in the March quarter.

The other major segments — petrochemicals and oil & gas exploration — did badly.

And, while the organised retail business has grown profit strongly year-on-year, its performance slipped on a sequential basis. The 8.4 per cent growth in the overall consolidated profit over the March quarter last year is primarily due to the 24 per cent rise in the refining segment’s profit.

After a disappointing show in the December quarter when it fell even as the benchmark rose, RIL’s gross refining margin rose faster than the Singapore benchmark to $10.1 a barrel in the recent March period.

This was aided by firm product cracks in petrol, diesel and naphtha. As a result, the operating profit margin in the refining business — the company’s largest segment — more than doubled both sequentially and year-on-year. This offset the weakness in the petrochemicals and exploration businesses.

The operating profit margin in petrochemicals — the second largest segment — improved a tad due to firm polymer and polyester cracks. But weak product prices due to the sharp fall in crude oil meant that the segment’s profit fell 6.8 per cent year-on-year.

In the oil and gas exploration segment, even the international operations, (US shale assets) which did well in the December quarter, disappointed in the March quarter with weak gas price taking a heavy toll. This, combined with the continuing poor show in the domestic exploration business due to the travails in the KG-D6 asset, resulted in the segment’s profit falling 36 per cent year-on-year and 41 per cent on a sequential basis.

Reports suggest that the MJ1 field in KG-D6 holds good promise; investors would be hoping that this is indeed the case.

RIL’s retail business has grown rapidly over the past year with revenue rising 31 per cent and profit quadrupling year-on-year. But on a sequential basis, the business has lost momentum with near flat sales and profit falling 22 per cent. Costs related to rapid expansion seem to have impacted the segment’s bottom-line.

Reports indicate that RIL’s much-awaited telecom rollout could happen in the next few quarters. The company seems well positioned having won spectrum in 13 key circles in the recent auctions; it now has presence in all the 22 circles in the country.

Despite the ongoing massive investments in the refining, petrochemicals, retail and telecom segments, RIL’s debt-to-equity ratio remains comfortable at less than one time. So does the cash hoard at about ₹84,500 crore. ‘Other income’ took a backseat, contributing 25 per cent of profit before tax in the March quarter, down from 33 per cent in the December quarter – this was due to the good show by the refining business.

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