In an analysis of RIL's quarterly earnings on CNBC-TV18, Prayesh Jain, analyst - oil and gas, IIFL says that the fall in petchem revenues will be offset by the launch of new capacities which will usher in higher levels of integration and eventually add to profitability in the medium-term.
Below is the edited transcript of the analysis on CNBC-TV18
Q: What is your view on the earnings which revealed a a net profit of Rs 5352 crore and flat petchem EBIT?
A: The profit after tax (PAT) is slightly above expectation. However, petchem EBIT margins are lower than expected. We expected it to be around Rs 2,123 crore while the company declared only around Rs 1,888 crore.
However, refining EBIT seems to be better than expectations at Rs 2,951 crore versus expectations of around Rs 2,777 crore. So, both have nearly offset each other to result in an operating performance that is in line with expectations.
Q: Could that be because the gross refining margin (GRMs) were at USD 8.4 per barrel which was higher than expectations?
A: We expected the GRMs to be at around USD 8.5 per barrel.
Q: How would the market react to the stock with the company declaring other income of Rs 300 crore?
A: On the face of it, the earnings are in line with expectations. So we don’t expect the market to react negatively. The disappointment on petchem performance has been slight.
Q: Petchem performance is key because Mukesh Ambani was bullish on the business in the AGM and the market expected the business to grow 20 percent QoQ. The fall in petchem revenue has caused only a slightl dip in the EBIT. Will this be viewed negatively?
A: We will not view this very negatively because RIL’s new capacities are expected to start operations slowly and steadily from possibly H2FY14 onwards. The new capacities will usher in a higher integration which will eventually add to profitability in the medium-term. So, we are not too perturbed by the petchem performance
Q: What about oil and gas?
A: That is on expected lines. Production from KG-D6 is declining and profitability of the segment is slightly better than expected.