Reliance Industries’ Q2 Profit Beats Estimate On Higher Petrochemical Earnings

Reliance Industries Ltd. posted better than expected net profit of Rs 7,704 crore for the July to September quarter, buoyed by higher profitability from its petrochemicals business. Profit grew 2.1 percent on a quarter-on-quarter basis, the company said in a stock exchange filing, versus analyst expectations of a sequential decline. On a year-on-year basis, net profit rose 17.4 percent.

Revenue increased 8.2 percent to Rs 64,344 crore on a quarterly basis, the filing said.

The petrochemicals business performed better due to higher volumes and product margins, Mukesh Ambani, chairman and managing director of Reliance Industries said.

Earnings before interest, tax and depreciation and amortisation (EBITDA) fell 2.4 percent to Rs 10,817 crore compared to the previous quarter. EBITDA margins contracted by 178 basis points to 16.4 percent on a standalone basis.

Refining Margins

Gross refining margins for the second quarter stood at $10.1 per barrel against $11.5 per barrel in the previous quarter. The refiner’s premium over the benchmark Singapore complex margin contracted to $5 per barrel from $6.5 per barrel in the quarter before. Singapore gross refining margins, which is the benchmark gross refining margin for major Asian refiners, averaged around $5.1 per barrel.

Petrochemicals Business

Revenue from the petrochemicals business increased 8.2 percent sequentially to Rs 22,422 crore. This was primarily due to increase in the volume of fiber intermediates and polyester products. Petrochemicals margins expanded to 15.2 percent – a 14-quarter high.

The petrochemicals business also recorded the highest ever earnings before interest and tax of Rs 3,417 crore led by polyester demand which grew 14 percent in the second quarter.

Production of petrochemicals increased to 6.4 million metric tonnes from 6.1 million metric tonnes in the previous quarter.

Oil and Gas Business

The oil and gas segment saw weakness as revenues declined 35.7 percent to Rs 1,327 crore from Rs 2,064 crore in the same quarter of the previous year. The decline in revenue was led by lower upstream production in domestic blocks.

Reliance Industries' KG-D6 basin produced 0.26 million barrels of crude oil in the second quarter, declining 34 percent from a year ago. The production of natural gas too declined 32 percent year on year to 25.1 billion cubic feet.

The Panna-Mukta and Tapti fields produced 1.55 million barrels of crude oil, a reduction of 17 percent from the same period of the last year. Natural gas production fell 12 percent on a yearly basis to 15.2 billion cubic feet.

Retail Business

The organised retail business saw revenue grow by 21.2 percent on a quarterly basis to Rs 8,079 crore. A growth in digital, fashion and lifestyle and petroleum products led the increase in turnover.

The company sold over 3 million Reliance Lyf mobile phones in this quarter which added around Rs 1,300-1,400 crore to the overall revenue.

Going Forward

For the financial year 2017, the company’s planned capital expenditure has come down to Rs 17,000 crore following completion of projects.

This profit boost is crucial for billionaire Mukesh Ambani-controlled Reliance, which is giving out telecommunications services for free till the end of this year. It has managed to get around 16 million subscribers enrolled in Reliance Jio in less than a month, and according to the management, it is adding on an average 0.6 to 1 million subscribers per day. Further, it intends to invest an additional Rs 1,00,000 crore in the telecom business over the next four years through internal accruals.