RIL Q3 results: Cash flows in, oil flows out
RIL Results - More and more money out of money, less and less money out of Oil, says Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities Limited.
January 24, 2012 / 15:50 IST
Reliance Industries (RIL) Results - More and more money out of money, less and less money out of Oil, says Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities Limited.
I. On Quarterly Results1. The Reliance Industry results for the Q3 FY 12 have been below estimates, in terms of several operational metrics.2. It seems that the company had challenging quarter in terms of GRM (Gross Refining Margins), Gas Output, PetChem margins, etc.3. However, the positive surprise came from the "Other Income" segment, as the company was surely benefitted by the treasury income on the ample cash balances on the balance sheet of Rs 74,539 Crores. The "Other Income" has increaed from Rs 741 Crores (in Dec 2010 quarter) to Rs 1717 Crores (in Dec 2011 quarter), showing a jump of 131.7%.4. Hence, it can be said that, whatever profitability squeeze that company was facing on the operational front, is being compensated to some extent by the "Other Income".5. Just to put the things in perspective regarding the growing significance of "Other Income" in the performance of Reliance, would like to mention a quick statistic. The "Other Income" in the current quarter constitutes 30% of the Profit Before Tax. That is quite a significant percentage for the size of the P&L of Reliance.6. To put in other words, the "operational business" of the company is contributing about 70% of the Profit Before Tax and the "Other Income" is contributing about 30% of the Profit Before Tax.7. Further, if one observes the segmental reporting, the share of three core operational business in profit before tax is as follows: Petro Chemicals (Rs 2,157 Crores), Refining (Rs 1,685 Crores) and Oil & Gas (Rs 1,294 Crores). Whereas the Other Income is at Rs 1,717 Crores. Meaning thereby, the Other Income is contributing more than the core business segments of Refining, Oil & Gas.8. To summarize, Reliance is making more and more money out of money, less and less money out of oil.II. On the Buyback1. The details of buyback announcement by Reliance in terms of the Buyback size (at Rs 10,440 Crores) and Buyback price (at Rs 870 per share) are in line with our estimates.2. The modus operandi the company has choosen for buyback is "Open Market Purchase".3. Hence, the company will buy the shares from the open market, at the market prices. Meaning thereby, the maximum buyback price of Rs 870 per share is only "maximum buyback price" and not necessarily "actual buyback price".4. However, this buyback will surely provide the sentimental boost that the company is ready to buy the shares if the share price of the company comes down sharply.5. As far as the stock price performance is concerned, it seems that the challenging impact of results may overshadow the positive impact of the buyback.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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