Q3 Results: Reliance Industries Beats Estimates Even As Refining Margin Falls

Reliance Industries Ltd.’s profit rose for the sixteenth straight quarter even as relatively softer crude prices kept refining margin lower.

The Mukesh Ambani-led company’s standalone profit rose 0.8 percent over the previous three months to Rs 8,928 crore in the quarter ended December. That compares with BloombergQuint’s estimate of Rs 8,665 crore.

• Net revenue rose 4.1 percent to Rs 1 lakh crore on a quarterly basis.
• Operating profit fell 2.6 percent to Rs 14,507 crore.
• Operating margin contracted 100 basis points to 14.5 percent.
• The gross refining margin declined to $8.8 per barrel from $9.5 earlier, falling for the fifth straight quarter.

Oil companies are expected to have a weaker quarter due to “large adventitious inventory loss”, according to Kotak Institutional Equities. But Reliance Industries was able to offset that due to its operational hedging, a weaker rupee, reversal of foreign exchange losses and higher other income.

Ambani’s flagship firm still had a muted quarter due to weakness in refining margin and a fall in global crude oil prices. Yet, its premium to the benchmark Singapore GRMs (gross refining margin) was $4.5 per barrel as in the previous quarter it had shut a key fluid catalytic cracking unit in August.

“In an oil price environment that witnessed heightened volatility through the quarter, RIL has delivered strong quarterly results on a consolidated basis,” said Ambani, chairman and managing director, in a media statement. “Competitive cost positions and integration benefits is core to our oil to chemicals business, driving sustained performance even in challenging global business environment.”

The weakness is set go on this year because a revival in Asia’s benchmark refining margins is unlikely, said Vineeta Sharma, head of research at Narnolia Financial Advisors. “The downward trend for gross refining margins, for Reliance, too, will continue. This $8.8 per barrel is already around a 15-quarter low.”

Petchem Boost

While the standalone performance was better than estimated, it still signifies a slight slowdown in Reliance Industries’ mainstay oil refining and marketing business. That weakness has, however, been offset by continued strong performance of its petrochemicals unit and its telecom unit Reliance Jio Infocomm Ltd.

Revenue from the petrochemicals business rose 5.7 percent sequentially to Rs 46,246 crore due to better price realisation and higher volumes.

Reliance has been pumping new investments into its petrochemicals business, which drove its consolidated operating profit in the last few quarters. CLSA had said that the company will see a cash-flow boost from the stabilisation of a refinery off-gas cracker unit—which is the world's largest—and a new facility in Jamnagar, Gujarat.

Ambani’s Ambitions

India’s richest man is relying on profits from his refining and petrochemicals business as he looks to expand Reliance Industries into an offline and online retail giant, on the lines of Amazon.com Inc. and Walmart Inc.

Investor focus will remain on Ambani’s consumer businesses—Reliance Jio Infocomm Ltd. and Reliance Retail—which now account for 25 percent of its total revenue. “Retail and Jio will play an important part for Reliance now,” said Sameer Kalra, founder of Target Investing. “As far as incremental operating profitability is concerned, the majority will come from Reliance Retail and Jio.”

Its organised retail business saw profitability nearly triple from last year due to better festive sales and aggressive store expansion. The telecom unit, Reliance Jio, which is also now pivoting to broadband, cable and online content, also saw a 22 percent rise in profit on the back of higher subscriber additions.

All this may be good news for the stock. “These numbers are much better than what the markets expected and that should help the stock open higher at least in the morning trade tomorrow,” said Avinash Gorakshar, research head at Joindre Capital Services.

RIL’s stock ended almost unchanged ahead of the earnings announcement compared with a 0.15 percent rise in the benchmark Sensex.