The Q2 results of Reliance Industries (RIL) are in line with street estimates. Its net profit declined by 6.4% on a year-on-year basis to Rs 3,852 crore despite a 315.8% increase in other income to Rs 628 crore driven by higher interest income due to higher cash and cash equivalents. This is the fourth continuous quarter that the company reported a fall in quarterly profit.
Profitability was impacted on account of 51.4% decline in the earnings before interest and tax (ebit) of the refining & marketing business to Rs 1,347 crore. This was mainly because of the decline in gross refining margins (GRMs) to $6 per barrel from $13.4 per barrel last year. GRMs across the world have been under pressure due to overcapacity and fall in demand. Higher depreciation in the oil & gas and refining & marketing business resulted in a 91.5% increase in overall depreciation cost, which was above market expectations.
Refining revenues increased by 8.9% and formed 70.7% of the total revenues.
Petrochemicals revenues fell by 14.2% and accounted for 23.8% of total revenues but ebit increased by 15.7% and formed 45.9% of total ebit. This was because the industry was operating on low level of inventory, resulting in higher domestic realisations. Revenues from the oil & gas business increased by 57.5% sequentially led by higher production from KGD6 basin and accounted for 5.2% of the total revenues. However, ebit margins declined by 1233 basis points to 41.74%. Decline in ebit margins could be because of higher depreciation.
Going forward, rupee appreciation and pressure on GRMs should weigh on the stock, currently trading at Rs 2003.85.
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