The announcement of
Reliance Industries Ltd's (RIL) financial results for the quarter ending June 2012 shows that for the third consecutive quarter, its profit has declined.
In the last three quarters, ending December 2011, March 2012 and June 2012
RIL registered an annual profit decline of 13.6 per cent, 21.2 per cent and 21 per cent respectively. However, a closer look at its quarterly profit for the last five quarters reveals an interesting trend. Profits grew 5.3 per cent and 0.7 per cent in June 2011 and September 2011 respectively, before declining 22.1 per cent in the quarter ending December 2011 and 4.6 per cent in quarter ending March 2012. But now, in the April to June 2012, RIL has posted a 5.6 per cent profit growth over the previous March 2012 quarter.
Does this validate the view that RIL's fortunes are turning around? It is perhaps too early to tell. But unlike in the previous quarters when money generated from money was higher than money generated from core businesses, this time 'other income' was lower by 20.5 per cent at Rs 1,904 crore than the Rs 2,295 in the quarter ended March. The decline was due to the gain on maturity of mutual funds booked during the trailing quarter, RIL noted in its earnings release. Companies, towards the close of the financial year, streamline their investments, and this was the case with RIL too. This is evident from the fact that the 'other income' of Rs 1,904 crore in June 2012 was 76.6 per cent higher than the Rs 1,078 crore registered for the same quarter a year ago.
"We have commenced our next phase of capital investments in the refining and petrochemical segments to enhance earnings and value of our core energy businesses." said Mukesh Ambani, Chairman and Managing Director of RIL in the release. But, cash flow on account of capital expenditure for the year amounting to Rs 2398 crore ($ 431 million) is just 3.4 per cent of RIL's cash and cash equivalent of Rs 70,732 crore. These are primarily invested in fixed deposits, certificates of deposits with banks, mutual funds and government securities.
In the core business of refining, RIL posted a positive surprise on its Gross Refining Margin (GRM) of $ 7.6 per barrel. Singapore GRMs during the quarter were about $ 6.6 per barrel. Jagannadham Thunuguntla, Strategist & Head of Research at New Delhi based SMC Global Securities, in a note, calls this one dollar per barrel premium significant. "RIL had such a healthy premium about three quarters back. So, this is a definite improvement," says Thunuguntla.
The recently concluded buyback programme which led to extinguishing of over 28.58 million shares and an outlay of Rs 2,027 crore is a positive too. "One can expect that the company to go more aggressively in the coming quarters with buyback," says Thunuguntla. "This can reduce the overall cash balance of the company and lead to further reduction of the share of other income in the future quarters as well."
"RIL has improved its earnings profile as profits from operations were higher on a sequential basis on the back of volume growth in the refining business," Ambani pointed out in the release. But, only improvement in core business over the coming quarters will establish that RIL's fortunes are actually turning around.
Special 
