Tulsian analyses RIL's petchem performance in Q3

A: I think the interest income has increased by about Rs 250 crore, because if you sequentially see Rs 1,550 crore and now Rs 1,850 crore. Apart from that the upstream has really given a big surprise. I am unable to understand Rs 356 crore for Q2 and Rs 540 crore for this quarter. So this is really very big. So if you really take these two extras, Rs 250 or Rs 300 crore or Rs 200-150 crore, that explains the entire jump.

Q: Petchem business EBIT margin has come in at 8.4 percent.

A: It is a big disappointment. If you really see the kind of fall which we have been seeing in some of the petchem products like purified terephthalic acid (PTA), Monoethylene Glycol (MEG) there has been a drop, but this kind of margin shrinkage was not expected. That means we have seen a margin shrinkage of more or less about 160-170 basis points on a Q-o-Q basis.

Q: Gross refining margins (GRM) came in at USD 7.6. Is this what you are expecting?

A: That is what I have expected. Taking USD 7.6 if you take the refining segment's EBIT of Rs 3,141 crore I am not much surprised, because that has been very much in line, though it is slightly higher, maybe Rs 60-70 crore. As we have discussed one has to really closely analyse oil and gas, because for interest income also sometimes you may not have the surprise coming in.

If you really take the top-line also there has been an increase of about Rs 300 crore. For Q2 the top-line in the oil and gas segment was Rs 1,464 crore, for this quarter this is Rs 1,733 crore, which means there has been an increase of about Rs 275 crore, almost about 20 percent. We all know that things are in the public domain. There has been no improvement from the D6 block and how you really got this amount and if you really take the Krishna-Godavari and Tapti basin also I think this is a real kicker for such a good performance.

Q: A word on this new facility in Silvassa. Do you think that would be a positive trigger?

A: If you look the whole results from a critical angle, the company has been very aggressive in adding capacity in petchem segments. Let me just touch upon the EBITDA, Rs 7,622 crore against Rs 7,849 crore in the previous quarter, which means there has been a drop of about Rs 220 crore. Operating profit Rs 5,480 crore against Rs 5,610 crore in the previous quarter, again there is a drop, that means the petchem segment has taken a big beating and that is definitely a cause of concern, because petchem EBIT was Rs 2,500 crore in Q2 which has fallen to Rs 2,100 crore. If the company is really aggressive, because we have discussed this at the time of the Q2 numbers also that they are expecting the future growth driver apart from oil and gas because that has to get linked with the increased ramping of production, because we all know that prices have increased and they will also be entitled on furnishing bank guarantee.

If you really want to draw a negative from this result, the sharp drop in the petchem margin is really a cause of concern. 8.4 percent EBIT margin is definitely a cause of concern. It has been partly offset by oil and gas which we have discussed a while back and the interest income. So that is the reason EBITDA and operating profit is lower on a sequential basis. So the company has been very aggressive there, in fact ramping up the capacity and they want to be in top three or top five in different product profiles across the board.