Reliance Q4 Results: Profit Falls 73% As Oil Price Crash Hurts Refining Unit
An oil worker passes the waste gas venting pipes on an oil exploration platform (Photographer: Angel Navarrete/Bloomberg)

Reliance Q4 Results: Profit Falls 73% As Oil Price Crash Hurts Refining Unit

Reliance Industries Ltd. reported its steepest drop in quarterly profit in at least 13 years as its mainstay refining unit was hurt by lower sales and margins due to the collapse in crude oil prices.

Net profit fell 73 percent sequentially to Rs 2,580 crore in the January-March quarter, according to its stock exchange filing. Analysts’ estimates compiled by Bloomberg Quint had pegged the bottom line at Rs 7,303 crore.

  • Revenue fell 14.3 percent over the previous quarter to Rs 73,956 crore—lower than the Rs 75,992 crore estimate.
  • Operating profit fell 12 percent to Rs 11,343 crore.
  • Operating margin widened 40 basis points to 15.3 percent.
  • Gross refining margins—what RIL earns for refining one barrel of crude oil—stood at $8.9 per barrel.
  • RIL reported an exceptional loss of Rs 4,245 crore related to inventory loss due to the “dramatic drop” in crude oil prices.

“The numbers were disappointing. It was expected that there could be a big inventory loss,” said Avinash Gorakshakar, director of research at Profitmart Securities, said. “But if one were to take out the exceptional inventory loss, then at an operational level Reliance has performed decently.”

A collapse in global oil prices has led to a sharp decline in margins and inventory losses for oil refiners. While some of that has been offset by the discounts offered by Saudi Arabia, according to Nomura, it hasn’t been enough to make up for drop in oil demand across the globe as major economies reel under lockdowns to curb the spread of the Covid-19 pandemic.

Besides, finance costs for the conglomerate were also up due to higher tax payout. Tax expense as a percent of profit rose to 38.5 percent from 18.5 percent in the previous quarter.

Pressure on margin was not confined to RIL’s refining business. The petrochemicals unit also saw lower sales volume and higher exports, leading to a decline in its operating profit. Lower-than-expected price spreads across products hurt numbers further.

Revenue for the petchem unit fell 12.7 percent to Rs 32,306 crore. Sales volumes remained flat at 9.9 million metric tonnes. Operating profit fell 23 percent while margin narrowed to its lowest in the past 12 quarters.

Over the past few quarters, Mukesh Ambani’s conglomerate has been increasingly reliant on its newer consumer units, like retail and telecom, to hold up its earnings when the legacy businesses face pressure. Still, the nationwide lockdown imposed in the final week of March meant the retail business saw disruption in sales.

Revenue for the retail unit rose 4.2 percent, while operating margin rose 10 basis points to 5.4 percent—it’s highest level till date. Higher margins, despite the impact of lockdown and seasonality, was due to more sales from its core segments.

The telecom venture, Reliance Jio Infocomm Ltd., however, saw improved profit as it had raised tariffs. “The brighter spot continues to be Jio’s profitability,” Gorashakar said.

Still, it’s going to be more pain ahead for Reliance Industries with the full impact of the lockdown and oil’s impending further price collapse. “The first quarter number would definitely be softer. The lockdown impact will be more pronounced. The retail business could see shrinkage in both volumes and margin. And I think you could see weaker numbers in Q1FY21,” Gorakshakar said. “But a good recovery could happen from the second or third quarter of FY21.”

RIL also said that it will raise Rs 53,125 crore through a rights issue. Earlier in the day, the company announced pay cuts in its hydrocarbons businesses due to demand being adversely impacted by the Covid-19 pandemic.

Debt Position

  • Consolidated debt rose to Rs 3.36 lakh crore from Rs 3.06 lakh crore in the previous quarter.
  • Consolidated finance costs rose 12 percent to Rs 6,064 crore.
  • Capital expenditure was higher at Rs 21,707 crore from Rs 14,015 crore in the previous quarter.

Shares of RIL rose 2.60 percent today, ahead of the earnings announcement while the benchmark NSE Nifty 50 gained 3.21 percent.

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