Robust growth in refining, petrochem helps Reliance disregard weakness in oil and gas segment

25-Jan-11

Reliance Industries Ltd has posted a robust 28% year-on-year growth in net profits in the recent quarter to Rs 5,136 crore, despite a modest 6% growth in turnover. A strong showing in the refining and petrochemicals businesses has helped RIL shrug off weakness in its oil and gas segment. RIL's gross refining margins in the quarter improved sharply to US$9 a barrel from US$5.9/barrel a year ago and from US$7.9 in the previous quarter. This was led by strong demand for its refined products, ascending crude oil prices and higher light-heavy differentials. The high Nelson complexity refineries of RIL help it process cheaper, heavier crude to earn superior margins. The refining segment improved operating profits by a whopping 77% to Rs 2,436 crore, with EBIT margins growing by a strong 180 basis points (bps) to 4.6%. Backed mainly by strong domestic demand, the petrochemicals segment turned in its best quarterly performance with an 18% growth in operating profits to Rs 2429 crore. Margins also grew by a healthy 130 basis points to 15.2%. The oil and gas segment disappointed primarily due to the decline in the gas output from the KG-D6 field from 60 mmscmd to around 52 mmscmd. The segment's profits grew just 1.8% to Rs 1,504 crore, while margins registered a steep 580 bps fall to 36%. Amid a flat interest expense outgo, RIL's interest income grew by a strong 45% to Rs 666 crore. Resumption in ramp-up in the KG-D6 field expected later this calendar year may see the stock deliver good returns from present levels.