Reliance Industries: in refining lies strength The refining business has yet again emerged the saviour for RIL in the September quarter E-mailPrint Pallavi Pengonda Mail Me

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Reliance Industries: in refining lies strength

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Reliance Industries: in refining lies strength The refining business has yet again emerged the saviour for RIL in the September quarter E-mailPrint Pallavi Pengonda Mail Me

Read more at: http://www.livemint.com/Money/7EMcpKZih1s0KF9mqVCQaI/Reliance-Industries-in-refining-lies-strength.html?utm_source=copy

Reliance Industries: in refining lies strength The refining business has yet again emerged the saviour for RIL in the September quarter Pallavi Pengonda 0 Comments Subscribe to: Daily Newsletter Breaking News Latest News 11:37 AM IST Nearly 7 million Dropbox passwords said to be leaked 11:25 AM IST Powerful earthquake strikes off El Salvador, one dead 10:43 AM IST DLF shares tank 24% after Sebi order 10:31 AM IST Hurricane Gonzalo strengthens, nears British Virgin Islands 10:27 AM IST Sensex pares early gains; DLF, ITC, Hindalco fall Editor's picks RIL net profit up 4.5% on higher refining margins A prize for Jean Tirole CPI inflation falls in September; will RBI act? Government eyes Rs2 trillion from spectrum auction India betters its rank in Global Hunger Index The outlook on the core businesses continues to remain sluggish. The refining environment is expected to remain muted with margins expected to remain under pressure, thanks to lower demand. Photo: Reuters Nobody expected Reliance Industries Ltd’s (RIL’s) September quarter financial results to alter the outlook on the company materially. RIL shares have performed miserably so far this fiscal year. Since 31 March, the shares have risen by just 3%, while the S&P BSE Sensex has risen by as much as 18%. Of course, there are solid reasons for this—the main ones being the delay in gas price hike and the lack of traction in the company’s core businesses. In the quarter ended September, the refining business has yet again emerged the saviour for RIL, boosting the company’s overall performance. Consolidated refining revenue declined by about 6% on a year-on-year basis due to softer crude oil prices and lower crude oil processing. However, the segment reported smart Ebit (earnings before interest and tax) growth of 18.5%. That’s purely because RIL was able to report strong gross refining margin of $8.3 per barrel for the quarter, which is commendable given that Singapore complex refining margin dropped to $4.8 per barrel last quarter. The company’s premium over the regional benchmark widened to $3.5 a barrel compared with $2.5 a barrel in the corresponding period of the previous year, primarily aided by wider crude oil differentials and sourcing advantage, RIL said in a statement. The refining business’s Ebit accounted for the highest segment contribution at 52% for the September quarter in the total performance of the company. The petrochemicals business was the second major contributor. The oil and gas Ebit declined by 14.4% on a year-on-year basis on account of weak performance on the domestic front and weak prices for the US shale gas segment. The petrochemicals business delivered a satisfactory performance with revenue and Ebit declining marginally compared with the year-ago quarter. However, on a sequential basis, the petrochemicals segment showed a remarkable 26.7% improvement led by led by a strong rebound in margins of polymers, fibre intermediates and aromatics. The organized retail business’s Ebit improved, but the contribution from this business remains too small to make a meaningful impact. On an overall basis, RIL managed to report better (sequentially as well as on a year-on-year basis) operating profit margin of 8.9% last quarter. Stand-alone net profit beat estimates. Stand-alone net profit was Rs.5,742 crore, while a poll of Bloomberg analysts pegged the company’s net profit at Rs.5,596.5 crore. So far so good. What next? The outlook on the core businesses continues to remain sluggish. The refining environment is expected to remain muted with margins expected to remain under pressure, thanks to lower demand. For petrochemicals, shareholders would do well to keep a close tab on China, which is an important market, and on global capacity additions in the industry. RIL’s expansion plans are extremely critical for valuations to improve in the coming years. As Barclays Research pointed out in a note on 9 October, “There needs to be smooth execution of its US$14bn downstream expansions, which would drive EPS (earnings per share) growth in FY17-18E. RIL also needs to demonstrate a path for profitable growth in telecoms that would aid EPS post FY20E.” Other than that, careful capital allocation (where RIL has had a strong record for three decades, but a poor one in the last five years) will also be important as value appreciation rests on the premise of strong free cash flow, Barclays added. That will be challenging. But success on those fron

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reliance is to be benificial for the business sector

nagesh dubey