Reliance Industries, the largest Indian conglomerate, reported a 13.6 per cent fall in the net profit at Rs 4,440 crore for the December 2011 quarter. This is the lowest quarterly profit reported by the company in two years.
The street expected the company to report a 10.8 per cent fall in the net profit.
The company’s turnover rose 40 per cent at Rs 87,480 crore. It was expected to rise 35.7 per cent at Rs 81,178 crore (Rs 59,789 crore last year).
While the net profit fell below the street expectation, the revenue has topped market expectation.
The company results release does not make any mention of the proposed buyback offer. The size of the proposed buyback offer and utilisation of close to Rs 80,000 crore cash that the company could have at the end of March 2012 are two very important issues that the company was expected to address.
Reliance Industries is witnessing a pressure on profitability in core businesses like refining and petrochemicals.
Refining
A key metric for Reliance Industries is the gross refining margin (GRM). The GRM determines the profitability of the refining business which accounts for two-thirds of the company’s net sales and 40 per cent of the company’s profit before interest and tax (PBIT).
The company reported a GRM of $ 6.8 per barrel. The street expected Reliance to report a fall in GRMs at $5.9-$7 per barrel against $10.1 per barrel reported in September 2011 and $9 per barrel reported in December 2010.
Petrochemicals
The petrochemicals business reported a profit before interest and tax at 10.1 per cent against 15.2 per cent in December 2010. The company’s petrochemical business was expected to see support from the falling rupee. Petrochemicals is the second biggest business accounting for 27 percent of the net sales and 34.4 per cent of the profit before interest and tax.
“The global nature of our businesses and weakness in economic conditions resulted in reduced earnings in the quarter, particularly in our refining and petrochemicals businesses,” Mukesh Ambani, chairman, Reliance Industries said in a release.
“Our focus remains on enhancing shareholder value by leveraging an exceptionally strong balance sheet, operating top decile assets and investing prudently in future growth engines,” he added.
The street was also expecting some insight from the company on the financial progress of new businesses like retail and 4G wireless broadband. The company did not say much then and has refrained from making any material statements even in the September quarter.
Reliance Industries shares rose 1 per cent on Friday ahead of the result announcement. Reliance shares have underperformed the BSE Sensex over the past one year. While BSE Sensex fell only 12 per cent, Reliance shares are down 18 per cent.
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