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RIL bets on oil, gas, refining

Reliance Chairman Mukesh Ambani feels oil and gas development and refining to be key drivers to deliver earnings growth in the near future. Suprotip Ghosh reports.

business Updated: Apr 21, 2008 21:12 IST
Suprotip Ghosh

Reliance Industries Limited (RIL) posted a 24 per cent rise in profits for the period January to March 2008 due to better refining margins (profits earned from refining one barrel of crude oil). Net profit for the January-March period rose to Rs 3,912 crore ($978 million), from Rs 3,156 crore a year earlier.

The company clocked sales of Rs 38,697 crore for the quarter ending March 2008, up 32.17 per cent from Rs 29,276 crore a year earlier on higher profits from its high-margin refining business. Refining margin was Rs 618.8 ($15.5) a barrel for the March quarter, well above the benchmark Asian Dubai crack margin, which averaged about $7 (Rs 279.48) a barrel.

Net profit for the year ending March 2008 was up 63 per cent to Rs 19,458 crore, up from Rs 11,943 crore a year earlier. Sales however, grew at a slower pace of 18 per cent to Rs 1,39,269 crore, up from Rs 1,18,354 crore last year. While the refining business grew by 27 per cent during the year, petrochemical margins showed an increase of 3 per cent while polyester remained flat.

“Quarterly profits look healthy, while turnover too is on the higher side. Going forward, growth may slow in the chemical and polymer businesses,” said Deven Choksey of KR Choksey Securitie, a Mumbai-based brokerage.

Analysts feel that fourth quarter earnings of companies might slow since RIL’s businesses other than refining has showed slower growth. “Contraction of margins for other businesses like petrochemicals is clear from the results. This signals a slowdown in corporate growth,” said VK Sharma of Mumbai-based Anagram Securities.

Reliance group chairman Chairman Mukesh Ambani too seems to be placing his bets on the high-margin refining business for the future. “Our key investments in oil and gas development and refining are expected to commission this year. I expect them to be key drivers to deliver earnings growth in the near future,” he said.

Shares in the petrochemicals and refinery giant, valued at more than $96 billion ended 0.2 percent higher at Rs 2,642.15 on the Bombay Stock Exchange. RIL shares have slumped 21.4 per cent in the January-March quarter, when the oil and gas sectoral index fell by 24.7 per cent drop, while the BSE Sensex fell 22.9 per cent. “Outlook for the stock remains stable, though upwards movement will depend on the company’s future plans,” said Sharma.

RIL has posted better results despite 29.3 per cent increase in employee costs from Rs 1718 crore last year to Rs 2119 crore this year. The company had paid an additional Rs 376 crore to fund a voluntary retirement scheme for Indian Petroleum Corporation Ltd. (IPCL) Vadodara unit last year.