S P Tulsian of sptulsian.com said Reliance Industries’ bottomline numbers look good.

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian:

Q: Very basic numbers just the topline, bottomline, and GRM, what do you make of it?

A: We need to go and check all the details, may be the segment-wise revenue and EBIT figure, which are always available. If you take a call on the bottomline, it has really surprised. I had estimated a net profit of about Rs 3,810 crore but it has even surpassed that. However, this may include Rs 330 crore gain from IPCL. I hope the exchange profit, the fluctuation reserve of about Rs 250-260 crore, must not have got included in this. The company had excluded this in Q1, presuming that the bottomline is way above expectations.

Q: Just flesh out this IPCL gain? Would your Rs 3,810 crore expectation have included that?

A: Yes, I had estimated IPCL’s turnover of Rs 3,300 crore with an EBIT of Rs 550 crore, giving an EBIT margin of 16.6%. Depreciation was estimated to be Rs 1,100 crore, this figure includes about Rs 130 crore in depreciation from IPCL.

Q: Your sales expectation was Rs 32,000 crore and CNBC-TV18’s expectation was about Rs 33,200 crore. The net sales number is at Rs 32,000 crore. Is it lower than your expectations and what could account for that do you think?

A: My expectation was Rs 31,550 crore while it has come to Rs 32,043 crore.

Q: How much of this positive surprise is because of gross refining margins at 13.6%? Would you have assumed it a bit lower than that given how Singapore GRMs have moved compared to last quarter?

A: There is little confusion here because the drop in the Singapore margin is not more than 50 cents. That was USD 9.5 in Q1, which has fallen to about USD 9. Whenever crude prices go up, which we have seen happening, GRM increases. On the contrary, I was expecting higher GRM and not a fall. Ultimately, the company exports the entire quantity. Their export oriented unit exports nearly of 80% production. The matching increase is fetched by realisation and they have the ability to process heavy crude. This drop to the extent of USD 13.6 was not expected. If you have a lower realisation to the extent of USD 1, you lose about Rs 225 crore in the form of GRM.

Q: Were you expecting any kind of corporate announcement as Mukesh Ambani told a shareholder at the AGM that you will be happy on October 18? Some people in the market might have expected some kind of corporate development. Was the Street expecting that?

A: First, is the stock split, but I don’t think that was expected at this meeting. Second, was a secondary warrant conversion of Rs 12 crore, which was issued to promoters i.e the Mukesh Ambani group. These are due for conversion at Rs 1,402 in October 2008. There is a strong buzz that they are likely to get converted before December 31 in view of the company’s huge capex requirement for their KG and Cauvery basin. The latter though would not be requiring a huge amount. But the KG basin exploration would require about USD 2 billion. The early conversion would bring in about Rs 15,000 crore into the company’s kitty. Thus it is likely that the warrant conversion would take place either today or may be in the next 2-3 months.

Q: Other income is reported at Rs 168 crore, is that higher or lower than your expectations?

A: I estimated Rs 50 crore, so it is higher by about Rs 118 crore.

Q: But still there would be some positive surprise, it would not explain the entire positive surprise, would it?

A: There seems to be quite a sharp rise in the polyester and polymer margins. I had estimated EBIT at about 13.6%. There has to be a sharp increase in the polyester and polymer margin.

Q: At Rs 2600, given the kind of run-up that the stock has seen, do you think there is even room for a positive surprise from these levels, given the results that have come in?

A: I think the results are good. I do not think anybody should have any disappointment with these results, the stock would get re-rated from here on.

Q: Even from these levels you think?

A: Yes, even from these levels.