Reliance Industries

Reliance Industries (RIL) reported a 23% rise in its standalone revenues for the quarter ended September 2010 at Rs 57479 crore compared to corresponding previous year quarter while bottomline rose 32% to Rs 4851 crore mostly in line with market expectations.

Topline got a boost from refining revenues which increased 26% to Rs 49672 crore (including turnover and inter segment revenues) mainly due to incremental volumes coming from SEZ refinery, 47% jump in oil and gas revenues to Rs 4303 crore on account of higher quantities of oil, gas and condensate from KG D6 and 13% increase in petrochemical revenue to Rs 15096 crore.

Operating margins of the company rose marginally by 90 bps to 16.3% as cost of raw materials as a percentage to net sales rose 20 bps to 75.4% and 190 bps fall in purchases to 0.5%. Other income rose 7% to Rs 672 crore while interest cost was up 17% to Rs 542 crore. Depreciation was up 39% to Rs 3377 crore on account of higher depletion charge in Oil & Gas and increased depreciation in the Refining business. PBT was up 24% to Rs 6149 crore.

The Gross Refining Margin (GRM) improved to $7.9 per barrel in Q2FY'11 compared to $6.0 per barrel in the corresponding previous year quarter. It was also marginally up from $7.3 per barrel in Q1FY'11.

PBIT margins of RIL increased marginally by 30 bps during the quarter to 8.8% mainly due to 100 bps improvement in refining PBIT margins to 4.4%. Compared to this PBIT margins fell across all other segments. Petrochemicals PBIT margins fell 190 bps to 14.6% and Oil and gas PBIT margins fell 210 bps to 39.6%.

Refining PBIT margin was marginally up due to higher refining margins partly offset by higher depreciation on account of SEZ refinery.

PBIT Petrochemical margins were lower on account of incremental PP production from Jamnagar SEZ which witnessed significant margin reduction over Propylene. On a trailing quarter basis, EBIT margins reduced due to negative impact of margin reduction in PP-Propylene and most of the products in polyester and ethylene chain which offset the positive impact of margin improvement in PVC.

Oil and gas PBIT margins were lower due to higher proportion of KG D6 as compared to PMT due to shutdown in Panna-Mukta fields.

Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries Limited said: Improved refining margins and high operating rates at all our manufacturing facilities led to a record quarter. We are focused on identifying opportunities that leverage India's unique demographic and market potential.

Outstanding debt as on 30th September 2010 was Rs 68198 crore compared to Rs 62495 crore as on 31st March 2010. Net gearing as on 30th September 2010 was 20.3% as against 22.0% as on 31st March 2010.

RIL has cash and cash equivalents of Rs 29354 crore. The net capital expenditure towards projects for the quarter ended 30th September 2010 was Rs 3,296 crore.

Half Year ended results

For half year ended September 2010 Net sales of the company rose 48% to Rs 115705 crore compared to corresponding previous year period. Increase in volume accounted for 29% growth in revenue and higher prices accounted for 20% growth in revenue. Exports were higher by 56% at Rs 66,936 crore as against Rs 43,035 crore in the corresponding period of the previous year. The Gross Refining Margin (GRM) for the half year ended March 2010 was at $7.7 per barrel as against $6.3 per barrel in the corresponding period of the previous year.

Consumption of raw materials increased by 43.7% to Rs 89,390 crore mainly on account of higher crude oil prices as well as higher volume of crude oil processed in the SEZ refinery. Purchases for traded goods decreased from Rs 1,595 crore to Rs 790 crore. Employee costs were at Rs 1,277 crore for the half year as against Rs 1,153 crore reflecting increased payout to employees. Other expenditure increased by 37% from Rs 5,426 crore to Rs 7,452 crore due to higher selling expenses on additional volumes, royalty on higher oil & gas production, higher shutdown expenses, and exchange difference.

Operating profit before other income and depreciation increased by 38% from Rs 13,601 crore to Rs 18,738 crore. Net operating margin was lower at 15.5% as compared to 16.7% in the corresponding period of the previous year due to base effect and softer margin environment in petrochemicals partially offset by incremental share of the higher margin Oil & Gas business and improved refinery margins. Other income was marginally higher at Rs 1,394 crore as against Rs 1,337 crore as compared to the corresponding period of the previous year primarily due to higher average cash balances

Depreciation (including Depletion and Amortization) was higher by 59.2% at Rs 6,862 crore against Rs 4,310 crore in the corresponding period of the previous year primarily on account of higher depletion charge in Oil & Gas and increased depreciation in the Refining business.

Interest cost was higher at Rs 1,083 crore as against Rs 922 crore in the corresponding period of the previous year principally due to lower capitalization of interest charges. Gross interest cost was lower at Rs 1,311 crore as against Rs 1,681 crore for the corresponding period of the previous year on account of lower interest rates. Interest capitalized was lower at Rs 228 crore as against Rs 758 crore due to commissioning of KG D6 and SEZ projects in the corresponding period of the previous year. Profit after tax was Rs 9,774 crore as against Rs 7,518 crore for the corresponding period of the previous year.

Year ended results

For year ended March 2010 consolidated net sales of the company rose 35% to Rs 203740 crore compared to corresponding previous year period. The Gross Refining Margin (GRM) for the year ended March 2010 was at $6.6 per barrel as against $12.2 per barrel in the corresponding period of the previous year.

Operating margins of the company fell marginally by 50 bps to 15.2% as consumption of raw materials as a percentage of net sales increased 410 bps to 77.9%. Staff cost as percentage of net sales fell 70 bps to 1.4%. Other expenditure too fell 230 bps to 7.9%.

Other income of the company rose 14% to Rs 2186 crore due to higher interest income on account of higher average cash and cash equivalents and income from advances to subsidiaries. Interest cost was higher by 13% to Rs 2060 crore. Depreciation increased 94% to Rs 10946 crore primarily on account of higher depletion charge in Oil & Gas and increased depreciation in the refining business segment restricting PBT growth to 10% at Rs 20074 crore. The company made an EO income of Rs 8606 crore in FY'10 reflecting gain from sale of treasury shares compared to and EO expenditure of Rs 370 crore representing provision made towards estimated claims on account of subsidiaries. PBT after EO rose 61% to Rs 28680 crore. PAT rose 63% to Rs 24424 crore. PAT excluding effects of EO and considering minority interest PAT rose marginally by 4% to Rs 15898 crore.

Standalone Segment Results

Petrochemicals: For the quarter ended September 2010, the sales of petrochemicals division increased 13% to Rs 15096 crore representing 22% of total revenues of the company. PBIT was flat at Rs 2197 crore, which was 36% of total PBIT. The capital employed decreased 11% to Rs 36470 crore representing 16 % of total capital employed.

Refining: Refining which contributes around 72% of the company's total revenues, rose 26% to Rs 49672 crore in the quarter ended September 2010 mainly due to incremental volumes coming from SEZ refinery. The PBIT increased 63% to Rs 2192 crore accounting for 36% of total. Capital employed in this segment inched up 1% to Rs 76120 crore. The refining segment includes production and marketing operations of the petroleum products.

Oil and Gas: For the quarter ended September 2010, the sales of Oil and Gas division jumped 47% to Rs 4303 crore on account of KG D6 production representing 6% of total revenues of the company. The PBIT increased 39% to Rs 1706 crore, which was 28% of total. The capital employed increased 8% to Rs 53768 crore representing 24% of total capital employed. The oil and gas segment includes exploration, development and production of crude oil and natural gas.

Oil and Gas

• Current production of about 58 MMSCMD is taken from 16 wells of D1 / D3 and 5 wells of D26 fields. The production of gas condensate from D26 fields commenced from 21st April 2010.

• Production from Panna-Mukta was 613 MMSCM of natural gas, reduction of 33% and 490,600 tonnes of crude oil, reduction of 41% as compared to the corresponding period of the previous year due to shut downs in Panna Mukti fields.

• Production from Tapti was 1,459 MMSCM of natural gas and 79,600 tonnes of condensate, a decrease of 10% and 20% respectively over the corresponding period of the previous year. The decrease in production was due to natural reserves decline.

• Currently, two deepwater rigs are under operation for Exploration and one additional rig is expected in second half of the FY 2010-11.

• During the half year ended 30th September 2010, 33.8 million tonnes of crude was refined by the refineries reflecting an average utilization rate of 109%. In comparison, average refinery utilization rate was 85.2% in North America, 77.6% in Europe and 82.6% in the Asia.

• RIL.s Gross Refining Margin (GRM) for half year was at US$ 7.7 / bbl as against US$ 6.3 / bbl while RIL.s GRM for quarter was at US$ 7.9 / bbl as against US$ 6.0 / bbl in the corresponding period of the previous year.

• RIL has 695 retail outlets operational primarily in Western and Southern states.

Petrochemical Business

• EBIT margins for the half year ended 30th September 2010 were at 14.7% as compared to 17.2% in the corresponding period of the previous year on account of incremental PP production from Jamnagar SEZ which witnessed significant margin reduction over Propylene. On a trailing quarter basis, EBIT margins reduced due to negative impact of margin reduction in PP-Propylene and most of the products in polyester and ethylene chain which offset the positive impact of margin improvement in PVC.

• Due to cracker shutdown at Hazira, Nagothane and Gandhar manufacturing sites, the production of Ethylene decreased by 11% to 795 thousand tonnes while the production of propylene decreased by 8% to 334 thousand tonnes as compared to the corresponding period of the previous year.

• Polymer (PP, PE and PVC) production increased by 5% to 2.0 million tonnes due to incremental PP production from Jamnagar SEZ facility which was partly offset by lower PE production. Refinery Propylene production increased by 29% to 973 thousand tonnes primarily due to higher production from SEZ refinery.

• During the period, production of fibre intermediates (PX, PTA and MEG) decreased by 5% to 2.2 million tonnes primarily due to planned shutdown of one train in PX Jamnagar and PX plant at Patalganga. Polyester (PFY, PSF and PET) production volumes increased by 2% to 851 thousand tonnes. RIL has maintained its focus on specialty products which accounted for 58% of PSF and 45% of PFY production.

The scrip is currently trading at 1095.

Reliance Industries : Standalone Results

Reliance Industries: Segment results