Strong Gross Refining Margin Drives Earnings Beat at Reliance Industries

Reliance Industries Ltd. reported a net profit that beat analyst estimates, on the back of a strong profit margin in the refining business . Profit rose 4.4 percent to Rs 7,548 crore for the first quarter of the financial year 2017, when compared to the January - March period, surpassing the Bloomberg consensus estimate of Rs 6,441 crore. On a year-on-year basis, net profit increased 18.5 percent.

At Rs 53,496 crore, revenue for the quarter increased 7.1 percent over the preceding quarter but is down 18.7 percent year-on-year, the company informed the exchanges. These are financials for the standalone Reliance Industries and not consolidated group numbers.

Refining to the Rescue

Refining revenue declined in the first quarter by 20 percent to Rs 48,946 crore, when compared to the same quarter last year. But an average utilization rate of 109 percent and strong gross refining margins at $11.5 per barrel, the highest in eight years says the company, helped the business increase profit by 28.5 percent. When compared to the previous quarter though (January - March 2016) the segment revenue is up but due to lower GRMs, the profit margin has declined.

Petchem Update

The petrochemical business also saw a marginal decrease in revenue when compared to both, the preceding quarter and the first quarter of the last fiscal. The company attributed this to lower product prices. But capacity additions and hence higher volumes helped compensate, said the company in its media statement. Yet the segment’s profit at Rs 2,901 crore was marginally better than both comparable quarters.

Exploration Business Losses

The revenue decline at Reliance Industries was the deepest in the oil and gas exploration business, which saw a 34.8 percent fall over the same quarter last year to Rs 783 crore.

Hurt by both lower production and lower prices, the segment posted a profit of Rs 48 crore versus a profit of Rs 234 crore in the same quarter last year. But the number is an improvement on the Rs 242 crore loss recording in the preceding quarter.

Reliance Industries, in its media statement, disclosed a big drop in production at the KG-D6 field in the first quarter. Crude oil production was down 35 percent and natural gas production down 23 percent, over the same period last fiscal.

Telecom Business Update

The telecom unit, Reliance Jio Infocomm, now has over 1.5 million test users on its network, the company said in its media statement. The average monthly consumption per user is over 26 GB, and average voice usage per month is currently over 355 minutes.

But RIL did not disclose the launch date for Reliance Jio, stating just that the “test program will be progressively upgraded into commercial operations in coming months.”

Retail Business’ Rise

Besides strong refining margins, organised retail also came to the rescue in the first quarter. The business segment saw a strong 45.8 percent jump in revenue to Rs 6,666 crore compared to Rs 4,572 crore in the same quarter last year. The operating profit margin has been maintained at around 2 percent levels (2.2 percent).