Halting the fall in sequential profits over the previous two quarters, Reliance Industries’ bottom-line in the June quarter grew 5.6 per cent over March.
This was mainly due to the strong performance in the company’s refining segment. While gross refining margin (GRM) remained unchanged at $7.6 a barrel, higher volumes helped the segment grow profits by almost 27 per cent on a sequential basis. The company posted better-than-expected margin due to wider light-heavy differentials, which offset the weakness in product cracks. The company’s high complexity refineries can process cheaper, heavier crude into value-added products. The refining segment’s operating margins also increased from 2.2 per cent in the March quarter to 2.5 per cent in the June period.
The good show in the refining segment offset the 19 per cent sequential fall in profits in the petrochemicals segment. Lower sales volumes across most products impacted the segment’s performance, and operating margins fell from 10.2 per cent to 8 per cent.
Interestingly, the high-margin oil and gas segment posted a marginal 2.2 growth in sequential profits, despite falling production in KG-D6, and Panna-Mukta and Tapti fields. This was due to lower depletion charges in the segment. Operating margins grew from 36.5 per cent to 38.8 per cent.
Other income which dominated the company’s core segments in the March quarter fell 17 per cent sequentially in the June quarter. This reduced its contribution in the profit before tax from 42 per cent in March to 35 per cent. But ‘other income’ remains the second largest contributor (after refining segment) to profits.
On an aggregate basis, RIL’s profit before tax remained flat compared to the March quarter. Exchange rate differences due to the fall in the rupee played a role. But a sharp 20 per cent dip in tax outgo due to deferred tax credit helped the company post profit growth at the net level.
While sequential profits grew, the company’s performance on a year-on-year basis continues to disappoint. Profits fell 21 per cent compared to the June 2011 quarter with the three core segments posting profit declines of between 21 per cent and34 per cent. Effective utilisation of the company’s large cash hoard (Rs 70,732 crore) and tangible progress in the critical oil and gas business will be crucial for a turnaround in the company’s fortunes.