RIL refining margins down

The December quarter results of Reliance Industries (RIL), India’s largest private company, were broadly in line with street estimates.

The global environment for the industry in which RIL operates has worsened in the last one year. In that light, a 9% year-on-year fall in revenue to Rs 31,563 crore looks reasonable.

Compared with the September quarter, however, the fall is a much sharper 30%, due largely to the steep fall in crude oil prices. Spot prices of Brent crude fell 57% to $41.76 per barrel from $97.44 per barrel.

All the same, businesses such as RIL’s are better compared on a year-on-year basis, rather than sequentially.

RIL’s refining performance was impacted by falling margins. Gross refining margins (GRMs) fell to $10 per barrel from $15.4 per barrel a year ago. Singapore refining margins fell at a faster pace to $3.6 per barrel from $7.7 per barrel.

A weak rupee, however, offset the impact of falling margins to some extent.

Refining revenues fell 17%, but earnings before interest and tax (Ebit) fell 28% on account of falling GRMs.

Petrochemicals business revenues were more or less constant, but Ebit fell 6.7%. Lower raw material prices helped margins.

The oil and gas business did well, though it contributes only 3% of the revenues.

Overall, RIL posted a growth of 8.3% in Ebit to Rs 4,225 crore, excluding the exceptional item the company had last year. It had sold shares of Reliance Petroleum in the December quarter last year and had an exceptional item of Rs 4,733 crore.

But, other income also grew 175% to Rs 663 crore, though its impact was more or less offset by a 91% increase in interest and finance charges.

At Rs 1,132.95, the stock trades at eight times its estimated earnings for 2010 and can
be considered on declines.