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Reliance beat analyst expectations on almost all parameters
Reliance beat analyst expectations on almost all parameters. The company in its December 2015 quarter posted a profit of Rs 7,357 crore (Rs 73.57 billion) as compared to Rs 5,191 crore (Rs 51.91 billion) in the same quarter last year, and Rs 6,625 crore (Rs 66.25 billion) in the September 2015 quarter. Lower oil prices have affected the company’s revenue, not its profit.
Following are the five key takeaways from its results:
Reliance turnover of Rs 73,341 crore was lower by a whopping 23.9 per cent as compared to Rs 96,330 crore during the same period last year. A 42.7 per cent fall in oil prices resulted in the prices of final products also sliding. As a result, exports too fell by 37.5 per cent to Rs 36,564 crore during the quarter as compared to last year.
Slowdown in global economies too seems to have affected the company as its refined product volume was lower from 11.9 million MT to 10.9 million MT.
Lower oil prices and relatively lower finished product prices helped Reliance report a gross refining margin of $11.5 per barrel, the highest in the last seven years as compared to $7.3 per barrel during same quarter last year and $10.6 per barrel in September quarter.
Strong gasoline and naphtha cracks, seasonal rebound in middle distillates cracks, robust demand growth and sourcing of advantageous crude helped boost refining margins.
At the earnings before interest and tax (EBIT) level, the company’s profit doubled from Rs 3,267 crore to Rs 6,491 crore on a YoY basis.
Oil and gas division of the company was the worst hit on account of depressed global prices. While its revenue fell from Rs 2,841 crore in December 2014 to Rs 1,765 crore in December 2015 -- a drop of 37.9 per cent -- its EBIT crashed from Rs 832 crore to Rs 90 crore, a fall of 89.2 per cent.
Along with fall in global and domestic prices, volume of throughput was also affected in domestic wells. Lower gas prices in US and a mild winter impacted revenues of shale gas business. Revenue dropped by 48.2 per cent from Rs 1,488 crore to Rs 771 crore but EBIT slipped from Rs 567 crore to Rs 61 crore.
In order to tide over the crisis, Reliance and its JV partners have slowed down drilling new wells and their focus was on liquidating existing well inventory to bring more wells online than drilled and delivering wells at much lower well costs.
Organised retail business of the company has grown in size but has yet to make a meaningful contribution to the bottomline. Revenue from the division increased by 28.9 per cent from Rs 4,686 crore to Rs 6,042 crore, an increase of nearly Rs 1,350 crore but EBIT improved from Rs 133 crore to Rs 147 crore.
Incremental revenues added on Rs 14 crore to its profits. The company operates in 371 cities with 3,043 stores. Aggressive addition of stores in the recent quarters is probably the reason that each store has revenue of only Rs 2 crore per quarter. It is only after the store has stabilised can we get a better idea as same store sales figure is not available in the press release.
From the markets perspective, the one thing that can impact the company’s market performance is the telecom venture. Though the stock has touched a 52-week high recently while the market touched a 52-week low, the anxiety over its telecom venture continues.
All the company has said in the release is that the test launch of Jio for Reliance employees and channel partners and vendors has been very positive.
The extensive feedback from trials shall be used to create a compelling service proposition for customers, says the release. A lot of the company’s resources is on line in the telecom venture, Reliance Jio. By announcing a rights issue, the management has revealed that more money will be needed in the venture. Success of Reliance Jio will decide the direction of Reliance stock in the medium term.