Stock Review: RELIANCE INDUSTRIES

Reliance Industries signed off an eventful FY11 in style with its last quarter net profit from operations jumping to its highest-ever level. But the scrip is unlikely to react much to the results on Monday, as the numbers were slightly lower than expected.

The company had grow its net profits by nearly 30% in the first three months of FY11, but the pace of growth slowed down to 14% in the last quarter. The healthy growth during the year was mainly due to the increase in its overall volumes thanks to the new refinery and KG basin gas, which were ramped up last year.

In comparison, the growth in the last quarter was mainly due to higher oil prices and higher refining margins.

The $9.2 per barrel refining margin RIL reported for the March quarter was much below market estimates of an average above $10. However, they were boosted mainly due to temporary phenomena like maintenance shutdowns and disruptions in Japan and Libya. Going forward, the overall refining margins scenario is likely to stagnate or even weaken to a certain extent as global supply of refined products grows.

The company's gas production is down to 52 million metric standard cubic metres per day (MMSCMD), from where it is unlikely to grow for a while, and the petrochemical segment is already facing margin pressure due to capacities coming up in Middle East and China. In this scenario, a slowdown in refinery margins could be a major worry for the company. It will be interesting to watch the company's results for the June quarter and onwards.
The company also witnessed pressure on its operating profit margins, which dropped 240 basis points to 13.5% during the last quarter. Amongst the segments, petrochemicals managed to maintain the margins, while refining improved slightly. It was mainly the oil & gas segment that saw margin erosion. For the whole year FY11, RIL's turnover was 29% up at . 258,651 crore. Increase in volume accounted for 11% growth in revenue and higher prices accounted for 18% growth in revenue. The net profit was 25% higher at . 20,286 crore as against . 16,236 crore for the previous year.

Ahead of the results, the stock inched up 1.4% to . 1,040, which discounts the total earnings for FY11 by 16.8 times.