Reliance Q3 net down 4.5% at Rs5,256 crore as falling crude hits margins

Reliance Industries Ltd, the country's top refiner, has reported the first decline in quarterly profits in more than two years as falling international prices of crude oil hurt refining margin.

RIL said its net profit for the October-December 2014 quarter decreased by 4.5 per cent to Rs5,256 crore ($834 million) from Rs5,502 crore a year earlier.

RIL achieved a turnover of Rs96,330 crore ($15.3 billion) for the quarter ended 31 December 2014, a decrease of 20.4 per cent, compared to Rs121,077 crore in the corresponding period of the previous year.

Sharp Y-o-Y fall in benchmark oil price of 30 per cent was the key factor for the decline in revenue.

Exports from India were lower by 21.5 per cent at Rs58,507 crore ($9.3 billion) as against Rs74,495 crore in the corresponding period of the previous year.

Cost of raw materials declined by 32.2 per cent to Rs62,196 crore ($9.9 billion) from Rs91,740 crore on Y-o-Y basis. This was mainly on account of lower crude oil prices and lower blending and trading activity in the export markets.

Employee costs were higher at Rs1,548 crore ($246 million) as against Rs1,173 crore in corresponding period of the previous year.

Other expenditure increased by 17.2 per cent on a Y-o-Y basis from Rs8,371 crore to Rs9,811 crore ($1.6 billion) primarily due to consolidation of Network 18 Media and Investments Limited from the current year.

Operating profit before other income and depreciation increased by 0.4 per cent on a Y-o-Y basis from Rs8,651 crore to Rs8,689 crore ($1.4 billion).

The profit fall underscores the challenges for its main refining and petrochemicals businesses, which have been struggling to maintain profit growth due to weak overseas demand.

Margins have also been affected by a nearly 60 per cent decline in crude oil prices since June.

RIL's refining margin fell to $7.3 per barrel from $7.6 last year.

Growth in its exploration and production business has also been hurt by a sharp decline in production at its main KG-D6 offshore gas block.

The deposit on India's east coast is the country's largest gas discovery. The company says output from the block has been falling due to geological factors, although the government has imposed penalties-currently totaling around $2.5 billion--on it for failing to meet production commitments. The matter is currently in arbitration.

"Our focus on operational efficiency and the superior configuration of assets helped us deliver an industry-leading performance in the refining and petrochemicals business despite sharp decline in crude and feedstock prices.

"The performance also highlights the robustness of our risk management and proficiency of people and processes across the integrated chain. We continued to advance our refining and petrochemicals business capital investments, which will come to fruition over the next 4-6 quarters. These investments demonstrate our commitment to creating value through the business cycle,'' Mukesh D Ambani, chairman and managing director, Reliance Industries Limited, said.

''During the quarter, Reliance Retail registered Y-o-Y growth of 19% in turnover with improved margins and profitability,'' he noted.

In recent years, Reliance has been investing in sectors such as telecommunications, retail, security, financial services, hotels and media as it seeks to diversify revenue sources and reduce dependence on the country's heavily-regulated oil and gas sector. It has also purchased stakes in shale gas assets in the US.