RIL surprises with Rs 7,704-cr net profit

Reliance Industries surprised the Street with a record standalone net profit of Rs 7,704 crore for the quarter ending September 2016 (Q2 FY17), 17.9 per cent higher than the Rs 6,534 crore profit after tax (PAT) reported in the same period last year. Bloomberg consensus estimates had pegged the net profit at Rs 7,239 crore on revenue of Rs 58,004 crore. Standalone revenue, too, was ahead of estimates at Rs 64,344 crore.

At the consolidated level, the company reported a net profit of Rs 7,206 crore, 22.9 per cent lower from Rs 9,345 crore in Q2 last year. The decline in consolidated net profit was because of higher exceptional gains of Rs 4,310 crore seen in the corresponding quarter last year. Excluding last year’s exceptional gains, the net profit was up 43.1 per cent. Consolidated revenue came in at Rs 81,651 crore, against Rs 74,490 crore a year ago.

Commenting on the results, Mukesh Ambani, chairman and managing director, RIL said: “The company has achieved outstanding second quarter results with strong refining business performance and record petrochemicals segment earnings.”

In a Bloomberg poll, analysts had estimated a consolidated net profit of Rs 7,248 crore and revenue of Rs 66,927 crore. The company continued to hold its gross refining margins in a double digit range.

Gross refining margin, or GRM, for the quarter came in at $10.1 a barrel, compared with $10.6 per barrel a year ago, and was in line with the Street estimates. Sequentially, GRMs were lower from $11.5 per barrel in quarter ended June 2016. However, the June 2016 quarter GRM benefited from inventory gains led by rising crude oil prices. In a report post June quarter results, Emkay Global analysts had pegged the inventory gain (boost to GRM) at $2 a barrel.

Consolidated revenue from the petrochemicals segment increased by 5.6 per cent year-on-year to Rs 22,422 crore, primarily because of growth in volumes of fibre intermediates and polyester products.

“Petrochemicals segment EBIT was at a record level of Rs 3,417 crore, supported by strong volume growth and firm margin environment,” RIL said in a press statement. Consequently, the segment’s EBIT (earnings before interest and tax) margins expanded to a 14-quarter high of 15.2 per cent during Q2 FY17. The segment accounted for 23.4 per cent of RIL’s revenue in Q2 FY17 and 37.2 per cent of EBIT. In its refining business, the company reported EBIT margins of 9.87 per cent, about 90 basis point higher than the last year. This segment is the largest revenue (63 per cent) and EBIT (65 per cent) contributor to RIL financials. So, even as revenue was flat, higher margins saw the segment’s EBIT increased nearly 10 per cent to Rs 5,975 crore, adding to the overall kitty.

The company’s oil and gas exploration and production business reported an EBIT loss of Rs 491 crore for the September 2016 quarter.

For its telecom (Jio) business, the company plans to invest additional Rs 1 lakh crore in the digital space over four years. This investment will largely be in the fibre to home, fibre option capacity and other areas, company officials said. “This will come in terms of furthering our own fibre optics footprints and fibre to home and areas in which we would continue to invest in,” said V Srikanth, joint CFO, RIL. For telecom services of Jio, the company added, it will continue to offer free services up to December 3, validity of which would apply up to December 31, 2016.

For its fuel retail business, the company does not expect the recent acquisition of Essar Oil by Rosneft would bring any fundamental change. “I don’t see any fundamental change in our strategy because of the deal. Do not see anything fundamentally alternate,” Srikant said. The company’s organised retail revenues (includes all retail formats like fuel, supermarket, grocery, electronics, etc) grew by a whopping 63 per cent to Rs 8,079 crore, while EBIT expanded 42 per cent to Rs 162 crore, compared with the year-ago period.

Apart from the profitability improvement in petrochemicals and refining businesses, RIL’s consolidated profits got a lift from higher income and decline in finance costs. Other income at Rs 2,393 crore was up nearly 64 per cent from Rs 1,460 crore in the year-ago quarter. Finance cost at Rs 893 crore was lower by Rs 90 crore from last year. Additionally, other expenditure decreased by 8.6 per cent to Rs 9,062 crore as against Rs 9,919 crore in the year-ago period, primarily because of lower expenses on account of exploration in relinquished blocks and blocks under evaluation.

Following the requirement to publish results as per Ind-AS accounting norms from FY17, the previous period figures were also restated as per the new norms to make them comparable. The results came post market hours on Thursday.