Rising share of profit from operations versus other income in the net profit of Reliance Industries (RIL), the country’s largest private company, has sent out a positive signal to the markets and investors alike. For the quarter ended December, the company posted a 10.1% year-on-year jump in total turnover at Rs96,307 crore.
Riding on high gross refining margins of $9.7 per barrel for the quarter, its net profit surged a whopping 23.9% to Rs5,502 crore. Profit from the core business rose to 69% of the net profit, at Rs3,796 crore, up from around 61% historically. The rest was other income – mainly interest income.
“This shows that the company’s performance is improving,” said Jagannadham Thunuguntla, head of research at SMC Investments and Advisors. He said the market is on the cusp of a turnaround and it is a welcome surprise that Reliance has exceeded expectations on all metrics.
The refining portfolio, which, together with petrochemicals, contributes 80% of its total revenues, clocked a sharp jump of 114.5% in operating profit to Rs3,615 crore . “Higher prices in petchem (petrochemicals) products and better refining margins were a positive surprise for the company and helped in clocking good numbers despite a fall in gas production,” said SP Tulsian, an independent research analyst.
Reliance’s petchem sales increased 11.5% during the quarter, mainly due to higher prices of products. However, due to rapidly falling gas production from its promising Krishna-Godavari gas fields, its revenues and operating profit from the exploration and production business fell 32.2% and 54.4%, respectively.
Expectations on the company’s stock are tempered, too. “Given the recent rise in the stock price, we maintain Neutral rating on the stock,” said Bhavesh Chauhan, senior research analyst, oil & gas, Angel Broking.