RIL's Q2FY16 net profit up by 12.5% on lower input costs

Mukesh Ambani, chairman, RIL

The increase in profitability was despite a 33.8 percent decline in turnover to Rs 75,117 crore in the same period. RIL benefited from its cost of raw material declining at a faster clip than its turnover. Raw material costs for the Mukesh Ambani-led company declined by 49.7 percent to Rs 41,192 crore. On a sequential basis, RIL’s consolidated turnover fell by 9.6 percent, while net profit rose eight percent.  

Since RIL is present across the hydrocarbon value chain, producing everything from upstream oil and gas to downstream products such as refined petrol and diesel and petrochemicals, lower crude prices is the primary reason for both its turnover declining as well as expenses coming down. In the September quarter, benchmark Brent crude prices fell by as much as 50.6 percent.    

“We achieved record levels of EBITDA (earnings before interest, tax, depreciation and amortisation) and profits for the quarter underscoring our ability to optimally utilise our assets across the value chain and leverage favourable market conditions,” RIL chairman Mukesh Ambani said in a statement on Friday.  

While turnover from RIL’s refining business declined by 41.2 percent year-on-year to Rs 60,768 crore, earnings before interest and tax from the segment grew by 42.1 percent to Rs 5,461 crore in the July-September period. Turnover from the refining vertical fell due to the fall in prices of refined petroleum products, which are linked to the price of crude. At the same time, strong demand for petroleum products across the globe led to better profit margins for RIL that aided the bottomline of the business.  

“RIL benefitted from product mix flexibility, robust risk management coupled with opportunistic crude sourcing and lower energy cost during the quarter,” RIL’s statement said.  

RIL reported a gross refining margin (GRM) – or the difference between the value of petroleum products sold and the cost of processing crude – of $10.6 per barrel in the September quarter, around 28 percent higher than the year earlier. The company, which makes refined petroleum products at its integrated refinery and petrochemical complex at Jamnagar in Gujarat, also saw the premium that its GRM enjoys over the benchmark Singapore GRM improve to $4.3 per barrel, from about $3.5 a year back.

Similarly, RIL’s petrochemicals business reported a 20.3 percent year-on-year decline in turnover to Rs 21,239 crore in the second quarter of fiscal 2016. But operating profit from the business grew by 7.2 percent in the same period to Rs 2,531 crore. Again, the decline in product prices in the petrochemicals chain was lower than the decline in input costs for the business, leading to increased profitability.  

RIL’s oil and gas exploration and production business continued to be an underperformer with revenues from the segment declining by 31.1 percent year-on-year in the July-September period to Rs 2,067 crore as challenges surrounding augmentation of gas production at KG-D6 in addition to declining crude prices. Earnings before interest and tax declined sharply by 70.4 percent in this period to Rs 242 crore. The company’s shale gas business in the US also performed poorly during the quarter with a substantial decline in both turnover and profitability.  

RIL’s retail business continued its growth momentum in the September quarter with the turnover increasing by 22.2 percent year-on-year to cross the Rs 5,000 crore-mark at Rs 5,091 crore. Operating profit from the business grew by 18.2 percent in the same period to Rs 117 crore.   

The consolidated net profit for the September quarter reported by the firm was also aided by a net exceptional gain of Rs 252 crore arising from gains of Rs 2,911 crore on the sale of its investment in a midstream shale gas venture in the US minus the provision of an impairment (net of tax) in the shale gas assets held by Reliance Holding USA Inc to the tune of Rs 2,659 crore.

The conglomerate’s outstanding debt increased to Rs 1,72,165 crore as on September 30, 2015, up from Rs 1,60,860 crore as on March 31, 2015. The company has cash and cash equivalents to the tune of Rs 85,270 crore as on September 30.  

(Reliance Industries Ltd owns Network 18, the publishers of Forbes India )