A good year-on-year performance in the refining segment (RIL) has helped Reliance Industries (RIL) offset, to some extent, margin pressure in the petrochemicals business and decline in oil and gas output, in the September 2011 quarter.

This has enabled the company grow overall revenues by a healthy 34.7 per cent, while profits have grown at a slower 15.8 per cent. On a sequential basis though, the company's performance has been lacklustre with revenues declining 3.5 per cent and profits growing by a marginal 0.7 per cent.

This has primarily been due to decline in its gross refining margin (GRM) on a trailing quarter basis, despite buoyancy in the benchmark Singapore GRM.

Healthy refining margin

The refining segment's y-o-y performance in the September 2011 quarter was aided by healthy GRM at $10.1 per barrel which was much higher than the $7.9 reported in the same quarter last year. This helped the company report a robust 37 per cent growth in segment revenues and a healthier 40.3 per cent growth in its profits.

Yet, on a trailing quarter basis, GRM disappointed and declined from the June quarter's $ 10.3 a barrel. This has caused the segment's revenues and profits on a sequential basis to fall by 7.6 per cent and 3.9 per cent, respectively.

In the high-margin oil and gas business, decline in KG-D6 output has taken a heavy toll, with the segment's revenues and profits declining 17.2 per cent and 10.3 per cent, respectively, on a y-o-y basis. That output in the fields has continued to fall over the quarter is also reflected in the segment's sequential revenues which have declined by around 8.5 per cent.

The saving grace is an improvement in the segment's EBIT margins from 37.8 per cent in the June 2011 quarter to 43 per cent in the September quarter. This helped the segment's sequential profits grow by around 4 per cent. Another positive is the improvement in output from its shale gas joint ventures in the US, which should reflect in consolidated profits, going forward.

Petrochemical segment

RIL has also put a good show in the petrochemical segment with revenues growing 39.5 per cent on a y-o-y basis. However, margin pressure has meant that profits have grown by a much lower 10.2 per cent. On a sequential basis too, while revenues have grown by 14.7 per cent, higher depreciation cost has resulted in profits growing at a slower 9.3 per cent.

Receipt of the proceeds from BP for the 30 per cent stake sale in 21 blocks has boosted the company's cash coffers from Rs 45,775 crore as of June 2011 to Rs 61,490 crore. Effective utilisation of funds will remain a challenge for the company.

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