Petrochemical expansion to drive growth of Reliance for next few years

Reliance Industries Ltd (RIL) has posted better-than-expected first quarter earnings. Analysts believe good quarterly results and huge capex to augment its petrochemical facilities will lead to uptick in the stock over the next two fiscals. Standalone net profit for the first quarter stood at Rs 5,649 crore, almost flat from the preceding quarter, but 5.5% higher from the corresponding period a year ago. Lower interest and depreciation costs along with slightly better refining margins were the key reasons for higher profit when compared with a year ago quarter. Its standalone revenue for the quarter was at Rs 96,351 crore, up 1.2% on sequential basis and 9.9% higher from the year-ago period. The petrochemical major's interest costs dropped by a whooping 60% to Rs 324 crore, and depreciation cost declined to Rs 2,024 crore in the quarter from Rs 2,138 crore. RIL's refining and petrochemical margins remained weak sequentially, as per the expectations. Gross refinery margins (GRMs) fell to US$8.7 per barrel from US$9.3/bbl in the March in line with 6% sequential fall in benchmark Singapore complex margins. The company's refining segment EBIT declined 3.7% on quarter to Rs 3,814 crore. Its petrochemical EBIT contracted 13.3% sequentially to Rs 1,863 crore due to weaker polyester chain margins which offset strength in polymer margins. Petrochem segment is currently going through a weak demand cycle. However, with the recovery in demand in the US and Europe, which likely to peak around 2016-17, new capacities will help the company take full advantage in two years. At the company's last AGM, chairman Ambani announced that the majority of RIL's Rs 180,000 crore investment lined up for next three years would go into petrochemical capacity expansion. Higher crude price and increased output from Panna-Mukta fields pushed the EBIT of exploration and production operations, by 38.4% on-year and 29% sequentially to Rs 487 crore. Improvement in shale gas and retail operations mainly pushed the company's consolidated revenues. Its consolidated net profit in the first quarter rose 1.3% sequentially, and 13.7% from the year-ago quarter to Rs 5,957 crore and its consolidated revenue during the quarter were at Rs 107,905 crore, up 1.6% sequentially and 7.2% from a year ago. The US shale gas operations Ebitda crossed $200 million for the first time, while retail revenue grew 14.5% from the year-ago quarter to Rs 3,999 crore in April-June. The company undertook store rationalisation during the quarter to improve margins.