Reliance Industries grew its turnover by a robust 26 per cent to Rs 72,674 crore year-on-year in the recent March quarter. Yet, it recorded a much lower 14 per cent growth in profits to Rs 5,376 crore.

The key reason for the muted profit growth was a disappointing performance by the company's oil and gas business. This segment saw revenues decline by 5 per cent over the previous year to Rs 4,104 crore, and operating profits decline even more sharply (7.8 per cent) to Rs 1,569 crore.

Clearly, the decline in gas production from the company's KG-D6 block from 60 mmscmd in the March 2010 quarter to around 50 mmscmd currently has had a telling effect on the segment's and the company's results.

Not surprisingly, EBIT margins in the oil and gas business declined 120 basis points over the previous year to 38.2 per cent, though this was better on a sequential quarter basis.

The refining segment, which delivered a stellar performance in the December quarter, did reasonably well in the March quarter too growing revenues by 22.3 per cent to Rs 62,704 crore and operating profits by a faster 26.3 per cent to Rs 2,509 crore.

Buoyed by rising crude oil prices, a strong refining environment and a widening differential between light crude and heavy crude, the company with its high complexity refineries improved its gross refining margin (GRM) to $9.2 a barrel (its highest in eight quarters) from $7.5 a barrel in the previous year. Yet, this was only marginally higher than the $9.0 recorded in the December quarter.

Considering that the benchmark Singapore GRM had moved at a faster clip during this period, RIL's GRM was expected to be better. The EBIT margin for the segment, at 4 per cent, though marginally better than the previous year, was down almost 60 basis points over the December quarter. The planned shutdown of a unit at the Jamnagar refinery during the quarter, may have contributed to the less-than-expected performance.

The petrochemicals segment, aided mainly by a strong domestic demand environment, put up a robust performance in the March quarter. Revenues and profits both grew at around 18 per cent each over the previous year to Rs 18,194 crore and Rs 2,626 crore respectively. The EBIT margin at 14.4 per cent, though at the same levels as the previous year, was lower by 80 basis points on a sequential basis.

The company's robust cash reserves increased to Rs 42,393 crore ($9.5 billion) from Rs 31,829 crore ($7.1 billion) in the December quarter, aided by the $2 billion (Rs 9,004 crore) received as a deposit from BP. This was in pursuance of the $7.2-billion deal in which BP took a 30 per cent stake in RIL's oil and gas business in India.

BP's expertise in deep water exploration and production should hopefully help RIL address some of the challenges faced by it in the KG-D6 block. Going forward, the refining and petrochemicals businesses are expected to do well, thanks to favourable industry dynamics.

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