Mumbai, July 20: Reliance Industries ' the country’s largest private company ' uncharacteristically lagged forecasts when it announced just a 10.3 per cent rise in first-quarter (April-June) net profit at Rs 2,547 crore compared with Rs 2,310 crore in the year-ago period.
There were two extenuating reasons: first, a planned shutdown of the Jamnagar refinery and the cracker and downstream facilities in Hazira meant a lower production of petro-products and polymers; second, a government subsidy scheme for state-owned oil companies led to a drop in Reliance’s marketshare for petrol and diesel sales from its retail pumps.
But it wasn’t just the bottomline of Mukesh Ambani's flagship company that disappointed the analyst community. The refinery-to-petrochemicals behemoth fell short of expectations in the topline as well. It reported a turnover of Rs 26,166 crore, a rise of 31.6 per cent. While net turnover was placed at Rs 24,522 crore (Rs 17,784 crore), profits were also impacted by lower ‘other income’, which slumped to Rs 44 crore from Rs 194 crore a year ago.
Leading brokerages like CLSA, Merrill Lynch, SSKI had expected RIL to post a profit figure between Rs 2,664 crore and Rs 2,749.5 crore.
However, Mukesh remained gung-ho over the quarter’s performance. “It has been an excellent quarter for RIL. All our businesses have recorded a robust performance in a very challenging environment,” he said.
But there was one big silver-lining with the company reporting a sharp jump in its gross refining margins (GRMs) to $12.40 per barrel in the April-June quarter against $10.30 per barrel in the preceding quarter. Asian refining margins have hovered around $8.90 a barrel during the quarter. Refining accounts for 67 per cent of the company’s revenues.
Listing the challenges that it faced during the quarter, RIL said the period witnessed a huge pressure on its retail marketing business as a result of unprecedented rise in crude oil prices and inadequate increase in selling prices of gasoline and diesel.
The government allowed PSU marketing companies to increase prices of diesel and petrol by Rs 2 per litre and Rs 4 per litre, respectively, in the first week of June. This price increase helped the companies pass almost 16 per cent of the burden of under-recoveries to the consumers.
Moreover, to ease the pain of under-recoveries not being offset by pump price hikes, the government issued oil bonds to PSU oil companies and forced upstream producers to chip in with assistance. Private sector marketing companies, including RIL, did not receive the same help in the form of either oil bonds or upstream assistance.
“The non level-playing field created by the government subsidy scheme to the oil PSUs has left RIL with no other option but to increase its retail selling prices. RIL’s current retail price is higher by Rs 2.5 per litre compared with PSU selling prices and this has resulted in a drastic drop in market share of RIL at its retail outlets. Even with this differential in price, RIL is incurring substantial under-recoveries in retail marketing,” the oil giant moaned.
The planned shutdown meant that the capacity utilisation of its Jamnagar refinery plunged to 91 per cent and it was able to process 7.51 million tonnes of crude. But even at this level, the company said it had fared better than its peers in North America, which reported capacity utilisation of 87 per cent, Europe (85 per cent) and the Asia Pacific region (86 per cent).
RIL said other income fell on account of the decrease in interest income due to utilisation of surplus funds primarily for investment in Reliance Petroleum (RPL).
Despite the disappointment, the Reliance scrip today opened strong at Rs 1,001 and rose to a high of Rs 1,009.95. It soon dipped to Rs 985.20 as disappointment over the results set in. However, the share ended at Rs 995.70, a gain of Rs 13.60 over last close.
“I am very excited about RIL's future as we continue to commit our cash flows in expanding our existing and new businesses,” Ambani said.
While consumption of raw materials also rose to Rs 18,152 crore on account of high crude prices, employee costs also increased due to performance linked incentives and increments. Other expenditure also witnessed an upward trend even as interest expenditure shot up to Rs 266 crore due to increase in borrowings and exchange differences.
An analyst from a domestic brokerage said that though concerns remain over the sales from its pumps, the company is expected to put in a better performance from the current quarter as its refinery operates at full capacity.
“I am very excited about RIL's future as we continue to commit our cash flows in expanding our existing and new businesses," Ambani said.