Strong Performance By RIL In The Quarter, Net Profit Up 28% Y-O-Y On Improved Performance By Refining And Petrochemicals

Strong performance by RIL in the quarter, net profit up 28% Y-o-Y on improved performance by refining and petrochemicals

21-Jul-17

Reliance Industries Limited (RIL) today reported its financial performance for the quarter ended 30th June, 2017. Highlights of the unaudited financial results as compared to the previous year are:
* Revenue increased by 26.7% to INR90,537 crore (US$14 bln)
* PBDIT increased by 8.1% to INR 14,692 crore (US$2.3 bln)
* Profit Before Tax increased by 9.1% to INR10,536 crore (US$1.6 bln)
* Cash Profit increased by 11.7% to INR11,252 crore (US$1.7 bln)
* Net Profit (excluding exceptional items) increased by 12.8% to INR8,021 crore (US$1.2 bln)

Corporate Highlights For The Quarter (Q1- FY 18)
* In April 2017, Reliance entered into a license agreement with Resysta International GmbH (Resysta) which gives RIL exclusive rights of production and marketing of RelWood™, a Natural Fiber Polymer Composite (NFPC), in India. This compound will be the raw material for the production of sheets and various profiles used in a wide range of wood and plywood replacement applications.
* In June 2017, Reliance announced the successful and flawless commissioning of the last crystallization train (Train 3) of the Para-xylene (PX) complex at Jamnagar. This plant is built with state-of-the-art crystallization technology from BP which is highly energy efficient. With the commissioning of this plant, RIL’s PX capacity has more than doubled making it world’s second largest producer of PX with about 11% of global production.
* In June 2017, Reliance and BP announced that they are moving forward to develop already discovered deepwater gas fields, bringing new gas production for India. Further, RIL and BP announced that they will award contracts to progress development of the ‘R-Series’ deep water gas fields in Block KGD6 off the east coast of India.
* In June 2017, Jio, announced the launch of the Asia-Africa-Europe (AAE-1) submarine cable system. AAE-1, the longest 100Gbps technology based submarine system, will stretch over 25,000 km from Marseille, France to Hong Kong, with 21 cable landings across Asia and Europe.

Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries Limited said: “Our Company recorded yet another strong quarterly performance with net profit of INR9,108 crore, up 28% Y-o-Y. Our industry leading portfolio of assets in the refining and petrochemicals business contributed to considerable improvement in our earnings for the quarter. Retail business also witnessed accelerated growth momentum with YoY revenue growth of 74%. Jio has revolutionised the Indian telecom and data consumption landscape. This digital services business has been built to address the entire value chain across the digital services domain with smart applications to make life simple, beautiful and secure. Over the last four decades, Reliance has continued to grow and evolve by creating value through building competitive global scale businesses and delivering increasing shareholder returns. Over the past 3-4 years, we made significant investments in new plants, thus creating organic growth platforms for our energy and materials businesses. Full commissioning of new PX facility at Jamnagar during the quarter will strengthen the integration within our polyester chain. Ramp-up of ethane import project has helped in diversifying feedstock sources and mitigating risks for our existing crackers at Dahej and Hazira. It is our constant endeavor to deliver world-class product and experience to Indian consumers through our retail and digital services businesses, which we believe are game changing initiatives.”

Financial Performance Review And Analysis :
Strong refining and petrochemicals margin environment contributed to higher operating profits for the quarter. Gross refining margins recorded nine-year-high of $ 11.9/bbl whereas petrochemicals EBIT margin were at all-time high of 15.8%.Cost of raw materials increased by 17.7% to ` 44,117 crore ($ 6.8 billion) from INR 37,469 crore on Yo-Y basis primarily on account of increase in crude prices and higher volume of crude processed. Exports (including deemed exports) from India operations were higher by 11.5% at INR37,111 crore ($5.7 billion) as against ` 33,282 crore in the corresponding period of the previous year. Other expenditure increased by 20.2% to INR10,332 crore (US$ 1.6 bln) as against ` 8,598 crore in corresponding period of the previous year primarily due to increase in power & fuel expenses with new capacity commissioning and higher selling expenses on account of increase in exports.
Depreciation (including depletion and amortization) was INR3,037 crore (US$470 mln) as compared to INR2,725 crore in corresponding period of the previous year mainly on account of capitalisation of new projects in the petrochemicals business. 1Q FY18 revenue from the Petrochemicals segment increased by 22.9% Y-o-Y to `INR25,461 crore (US$3.9 bln), primarily due to increase in prices of PP, PVC, PTA and Polyester and increase in volumes due to addition in capacity of PX at Jamnagar. Petrochemicals segment EBIT increased sharply by 43.7% to INR4,031 crore (US$624 mln), supported by favorable product deltas and volume growth. EBIT margin for the quarter was at 15.8%, an all-time high level.

Polymer & Cracker Business:
On Q-o-Q basis, crude oil prices dropped by 6% while Asian naphtha prices were lower by 11% due to ample supply in the region. Ethylene prices were lower by 9% due to lower feedstock prices. Propylene prices dropped substantially by 17% from peak values in last quarter in a well-supplied market.
Polymer prices declined marginally during the quarter. However, margins remained firm on Q-o-Q basis. PP margins increased sharply to $ 296/MT on account of lower propylene prices and PP inventory concerns in China. PE margins firmed-up to $ 700/MT with softness in naphtha prices. PVC margins remained stable as EDC prices dropped in line with softness in ethylene prices. India demand continued to revive post demonetization. Consumer and business spending is reviving and Indian economy is gradually catching its pace of faster economic growth. However, on Y-o-Y basis, domestic polymer demand was lower by 4% during 1Q FY18.This was led by 16% drop in PVC demand. Deceleration in PVC demand attributed to cautious buying approach by consumers. PP demand was higher by 3% aided by good demand from raffia packaging, automotive, fibre filament and appliances sector. PE demand witnessed 1% Y-o-Y drop due to cautious buying approach by consumers ahead of GST. RIL’s polymer production was down by 15% Y-o-Y to 0.98 MMT on account of planned shutdowns at Hazira and Nagothane. RIL continues to maintain its leadership position in the domestic market.

Elastomers
On Q-o-Q basis, Butadiene prices decreased by 59% due to drop in natural rubber prices and rise in inventories in China. PBR and SBR prices dropped by 36% and 30% respectively on Q-o-Q basis on the back of drop of natural rubber price and Feedstock Butadiene prices. On Q-o-Q basis, PBR and SBR delta increased by 108% and 110% respectively.

Polyester Chain
PX prices softened Q-o-Q by 9% in line with weak energy prices. PX-Naphtha delta was subdued on account of supplies in the region. PTA markets witnessed firm downstream demand and tight supplies owing to planned turnarounds at major plants. Low PTA inventory supported price sentiments. Prices were down Q-o-Q tracking soft upstream PX prices. However, PTA margins increased to $116/MT, above 5 year average level.
MEG prices witnessed downward trend at the beginning of the quarter which later started improving from mid quarter. Downstream buying remained strong, however, stable supply and adequate inventories in Chinese ports impacted prices which were down by 14% Q-o-Q. MEG delta over naphtha declined 17% Q-o-Q to $450/MT, but remained above 5 year average level. Polyester demand continued to remain firm during the quarter amidst low inventory and healthy offtake. Polyester producers operated at higher utilization rates to maintain adequate inventory. Operating rates of polyester fibre & yarn plants in China were in the range of 82-90% during the quarter. PFY and PSF prices declined by 9% Q-o-Q. PFY delta declined 11% Q-o-Q to $ 245/MT. PSF market fundamentals remained stable amidst continued healthy demand from woven / nonwoven from western markets and support from firm cotton prices. PSF delta was down 11% Q-o-Q to US$137/MT due to relatively firmer PTA prices.
Global PET markets were healthy owing to firm seasonal demand from beverage segment. PET prices declined by 6% Q-o-Q, however, delta firmed up 7% Q-o-Q to $159/MT, above 5 year average level.
Domestic polyester markets remained stable Y-o-Y. Apprehension of GST impact on stocks led to slow and need based demand across textile chain. Filament demand continued to grow 3% Y-o-Y despite cautious market sentiment owing to GST implementation. PET demand affected due to early arrival of monsoon and poor demand for branded CSD beverages in South India. Since downstream domestic inventory is at a low level, demand is expected to revive in the near term post GST stabilisation. Reliance completed commissioning of its PX facility at Jamnagar. All units are operating efficiently along with earlier commissioned PTA and PET plants, boosting the overall polyester chain production.
MEG production during quarter was lower due to scheduled cracker and plant shutdown at Hazira and Nagothane. Fibre intermediate production during 1Q FY18 increased 38% Y-o-Y to 2.1 MMT while Polyester production remained stable Y-o-Y at 0.59 MMT.

Review of US Shale Operations (1Q FY18)
US Shale Gas industry has shown remarkable resilience in recent past and has leveraged the down turn to improve operational efficiencies and to reduce services costs. With improved cost structure, activity has picked up and rig counts have increased in selected shale plays (including Eagle Ford and Marcellus) recently.
Drilling and completion activity that had re-commenced at Eagle Ford JV during end of 4QFY17, continued during the quarter. The JV is testing wells with new well design that involves well completion of relatively higher intensity and changed well spacing. At Marcellus JVs no drilling and completion was done in operated area, but activity continued at non JV area of Chevron JV.During 1Q FY18, commodity prices were down sequentially. WTI prices averaged 7% lower Q-o-Q at US$48.3/bbl, while Henry Hub gas prices averaged 4% lower at $3.18/MMbtu. NGL realization as % of WTI continued to improve on strong domestic demand, ethane exports and new crackers coming on-stream. Gas differentials improved in NE Marcellus regions with the start of new take-away.
With gas prices being supportive, production was maintained at relatively higher level at Carrizo JV compared to previous quarter; but at Eagle Ford JV several wells were shut-in due to completion activity in adjacent pads. As a result, overall Reliance’s share of production was 11% lower Q-o-Q at 34.7 bcfe. At the quarter-end, producing well count stood at 1,102 as compared to 1,098 wells in 4Q FY17.
The Shale Gas business continues to maintain a cautious approach to resuming development. Current focus remains on maintaining cost leadership that has been achieved in the recent quarters and on closely monitoring performance of new pads that utilize new well designs. Overall strategy is focused on preserving long-term value through high-grading of land and development portfolio, retaining optionality, improving efficiency and well cost, optimization of well spacing and smart completions for enhanced recoveries. The resilience in cost structure and the time out on drilling and completion activities enabled detailed technical studies that has now resulted in more robust forward plan.