India's Reliance Industries posted a surprise 24 percent surge in December quarter profits Friday, on unexpectedly strong refining margins and solid demand for petrochemicals.
In the September quarter, Reliance Industries Ltd’s refining business accounted for 56.8% of total earnings before interest and tax (Ebit), the highest in the previous 10 quarters at the time. That record has been broken in the December quarter, surprising analysts and helping the company beat estimates. For the December quarter, the refining business accounted for 58.1% of total Ebit. The petrochemicals business, too, has done well and perhaps has had a stronger impact on overall profitability.
Even as the petrochemicals business revenue has remained stable sequentially, the Ebit contribution has increased to 31% in the December quarter from 28% in the September quarter. In fact, the petrochemicals Ebit margin came in a bit higher on a sequential basis. One reason for the improvement in the petrochemicals business is better price. Also positive is the fact that analysts are slowly turning positive on the petrochemicals business.
The oil and gas business has disappointed. The contribution from the business to total Ebit has been the lowest for the past several quarters at 9.5%. This is, of course, because of falling production from the company’s gas assets. Also, the proportion of “other income” has not been unusually high as seen in some previous quarters, which improves the quality of earnings.
"RIL's performance has improved in this quarter with margin expansion in petrochemicals and record earnings in the refining business," chairman Mukesh Ambani said in a statement. He pledged to invest over a trillion rupees (US$18.6 billion) to upgrade the company's petrochemical and refining businesses, which he said would "secure a significant change in RIL's earning capacity."