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Reliance Industries sees strong year for its refining business

Saturday, 19 April 2014 - 8:40am IST | Place: Mumbai | Agency: dna

Posts highest GRM in Q4, flat net profit growth

Weighed down by fall in petrochemical profitability and lower other income earnings, Reliance Industries Ltd (RIL), the largest private refiner in India, on Friday reported a marginal growth of 0.8% in net profit in January-March to Rs 5,631 crore, up 2.2% sequentially, in line with market expectations.

Revenue for the quarter came in at Rs 97,807 crore, up 12.9% year on year (yoy) due to rupee appreciation, but much lower than market expectations of Rs 100,904 crore due to a fall in refinery revenues following lower throughput sequentially due to refinery shutdown.

RIL had shut one of the four CDUs (Crude Distillation Units) for about 3.5 weeks starting March 20, implying negative impact for 11 days during the quarter.

For the 2013-14 fiscal, RIL reported revenue of Rs 434,460 crore as compared with Rs 397,062 crore and net profit of Rs 22,493 crore as against Rs 20,879 crore.

During the fourth quarter, other income fell to Rs 2,036 crore as compared with Rs 2,243 crore yoy.

RIL reported strong improvement in gross refining margins in the last quarter of fiscal 2014, which came in at $9.3/barrel, much higher than the market expectations of $8.6-$9/bbl and the benchmark Singapore GRM of $6.2/bbl.

Refining operations which started the year at a slow pace gathered momentum towards the end of fiscal and the company is now seeing further improvement in demand for fiscal 2015.

Alok Agarwal, CFO, said, "We have closed the year very strongly. Refining margins were best in last 2-3 years as demand came back in the second half of the year. Also, refining saw highest ever quarterly EBIT in history."

He said there were signs of early stage of strong refining cycle following demand growth and slower capacity addition.

"Recovery in the US is gathering momentum and demand for transportation fuel in emerging market would be better in 2014 than 2013."

The company's performance is usually driven by its refining business, which accounts for around 80% of its revenue. The company's two refineries at Jamnagar in Gujarat make it the world's largest single-location refiner, with a combined capacity of 62 million tonne a year.

Refining EBIT for the quarter improved significantly to Rs 3954 crore, up 25.9% sequentially and 12.3% on-year following significant improvement in gasoline, naphtha and LPG cracks. Sequentially margins on petrol improved sharply to $14.6/bbl from $9.2/bbl. Margins on diesel remained firm $17/bbl.

Petrochemical EBIT in fourth quarter contracted sequentially 1.3% to Rs 2,096 crore, mainly due to sharp contraction in polyester and intermediaries cracks.

Out of the $12-$13 billion capex earmarked for petrochem and refinery RIL, has so far spent 30% while balance 70% is likely to be undertaken over next 18-24 months.

The exploration and production operations which has been facing tough times due to sharp fall in gas production from its KG-D6 block saw slight improvement to 13.6 mscmd from 12.3 mscmd in December quarter.

Agarwal said the company has been trying to stabilise operations and get more production from existing wells. shale gas.

On being asked about its ongoing dispute with fertliser buyers on new contracts for gas supply, Agarwal said, "We are where we are and we want to protect our position to as far as possible," RIL has been trying to get a higher security in the new contracts from fertiliser companies based on the proposed revised gas price $8.3/mmBtu.

RIL shale gas operations have gained momentum and contributed significantly to consolidated revenues. It has seen 35-40% improvement in shale revenues. The company plans to dig 125-175 new wells to improve output.

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