SP Tulsian of sptulsian.com believes that the Reliance Industries' earnings for the June quarter were in line with his expectations. He was expecting close to Rs 5,390 crore for the quarter. Meanwhile, the company reported a 19 percent rise (year on year) to Rs 5,352 crore.
Tulsian told CNBC-TV18 that the petchem earnings reduced due to the lack of improvement in oil and gas sector. Their refining segment was also not performing well and there was not much capacity addition, he says. “So, I was not very bullish on petchem”, he adds.
But, he sees a recovery for petchem business, going forward. “But, if we see the same kind of slack performance, then market will really be disappointed”, adds Tulsian.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Does this surprise you that the petchem earnings before interest and tax (EBIT) has actually come in lower than the last time. You were expecting Rs 1,915 crore and in line with your numbers. Even you were expecting a close to Rs 5,390 crore of numbers. What is your first comment on these numbers?
A: I will take that numbers as very much what I have been expecting for the quarter. If you really see their three segments, we all know the fate of oil and gas; nothing is going to improve.
Even the refining segment is also not performing very well because when we saw the USD 10.1 per barrel as the gross refining margin (GRM) Q4 quarter, market was very jubilant because it has fallen to USD 8.4 per barrel. It is more than what was expected.
So yes, the petchem has to really catch on from hereon. Unless and until company to that - but for this particular quarter, I was not very bullish on petchem. There has not been much capacity addition. But they should have gained slightly better because of the currency gain.
If you really see the polymer and the polyester prices, they are always import parity prices type based. They are derived on that basis. So, I am hopeful that from hereon things should be contributed by petchem.
But, if we see the same kind of slack performance, then market will really be disappointed. One segment has to really take the lead and that can only happen with the petchem. If that continues to remain subdued then market may not really be too happy about that.
Q: You are surprised by this USD 8.4 per barrel GRM as you were factoring in USD 7.9 per barrel?
A: That is right. If you see the Singapore benchmark, they have given a sequential drop of about 26-27 percent. I estimated a fall of about 20-21 percent for the company, which was giving USD sub-8 per barrel. So, USD 8.4 per barrel is really quite encouraging for the refining.
Q: I just wanted your take on this other income as interest income is Rs 1,628 crore and. This other unallocable income rate of expenditure is Rs 569 crore. How would you read that?
A: I think the whole spoil sport for these results will be these two items only. I don’t think that market is going to like other unallocable income of Rs 569 crore. You cannot expect this kind of income to accrue every quarter.
It means the bottom-line, which we have been seeing of Rs 5,352 crore, has a partly increase to the extent of Rs 650 crore. This is because, on a consistent basis, the company has an expense of about Rs 70-80 crore every quarter as other unallocable expenses, number one.
Number two, if you really see the interest income, they have been earning consistently of Rs 2,000 crore every quarter. If it has corrected to Rs 1,600 crore, it too gives an alarming signal as on the one hand, the interest expenses have increased by Rs 100 crore. On the other hand, there is a reduction by Rs 400 crore.
That Rs 20,000 crore or USD 3-3.5 billion must have been spent on that capex because the huge capex is only going on right now in the petchem segment. So, I think both this items needs to be examined very critically.
The market will be very much disappointed because the bottom-line has got bloated largely because of this unallocable income. So, I don’t think that the results will really be seen as good by the market.
Q: If we start to give the price-earnings (PE) to the business and then maybe slightly different yardstick for this other income will Reliance on Monday react on a negatively?
A: I won’t be surprised to see the share correcting to about Rs 870 or so maybe in the next couple of days. If you really go by the ballpark earnings per share (EPS) estimate of FY14 at Rs 70, it seems to be most optimistic. It can be anywhere between Rs 68-70. Of that, about Rs 18-19, will be coming from interest income and other unallocable.
So, you cannot really be happy because your core business is giving you an EPS of Rs 46-50. On that, you cannot give a PE multiple of more than 15-16. So going overall on this basis, I think, this is going to consider this other unallocable income as one-off and will trim down readjust the net profit and take that as Rs sub-5,000 crore for this quarter.