Net profit at Reliance Industries fell for the first time sequentially in more than eight quarters, buffeted by falling sales, depreciating rupee and crunched refining margins.
Here’s the picture of woe: RIL said profit in October-December was down 14% at `4,440 crore, compared with same quarter last fiscal. But that includes `1,717 crore of income generated from its mountain of cash worth `74,540 crore.
Leave that aside, and the profit fall becomes a more precipitous 38%.
The company earned $6.8 for every barrel of crude it refined into petroleum products, compared with $10.1 in the July-September 2011 quarter and $9 during October-December 2010.
Operating profit in the refining segment fell by 30.8% on lower gross refining margins, while in the petrochemical segment, it was down 11.2%.
And as RIL pumped out less gas, revenues from oil & gas exploration plunged 32.2%.
“The global nature of our businesses and weakness in economic conditions resulted in reduced earnings in the quarter,” chairman Mukesh Ambani said in the statement.
Ambani's not known to offer comments on RIL’s quarterly results.
To offset the stream of bad news, RIL unveiled a plan to buy back 12 crore shares from the market at `870 per share, a 10% premium to Friday’s closing of `794.10 on the National Stock Exchange.
The share had plunged 35% in 2011.
“Historically, whenever there are sugar-coated cookies such as a buyback, it’s a prelude to bad news,” Mohit Mirchandani, head of equity at brokerage Religare’s portfolio management business, told Reuters.
“But it’s also a positive indicator that they are close to the bottom of the petchem business cycle. Smart investors would look to buy the stock at this point,” said Mirchandani, whose firm manages about `2,000 crore.
In all, RIL will spend `10,440 crore for this, which are in line with estimates, said Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities.
But to S P Tulsian, independent investment advisor, that wasn’t enough.
“What this means is that if the stock price is lower than `870, they would utilise a much lower amount than stated to mop up the 12 crore shares. I don’t think institutional investors would take the results positively,” he said.
So, the company’s humongous cash pile won’t change by much.
Earlier on Wednesday, Nilesh Banerjee, Vikas S Jain and Siddharth Raizada of Goldman Sachs said the buyback announcement was a positive move since it reduces the concerns on surplus cash. “Assuming `15,000 crore of buyback would add about 2% net to earnings per share (EPS),” they said.
But the calculus now would show a far meagre gain of around 1.2% in EPS, experts said - far short of the 7-8% that the cash pile is now generating.
RIL’s debt is exactly as much as the cash it holds — `74,503 crore — before buyback.
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