ET Intelligence Group: Record high regional refining margins and steady growth in consumer businesses helped , India’s biggest company, post record quarterly operating profits that were in line with Bloomberg consensus estimates.
Net earnings in the June quarter were slightly lower than Street estimates owing to higher effective tax rates and lower-than-budgeted discounts on crude oil sourcing.
The Oil-to-Chemicals (O2C) business segment that contributes nearly two-thirds of total revenue benefited from a sharp surge in gross refining margins (GRM) – the difference between the total value of petroleum products coming out of an oil refinery and the price of the raw material.
Singapore GRM – a regional gauge – rose to $21 per barrel in Q1, compared with $8 in the previous quarter, thanks to supply disruptions in Russia and lower export of petroleum products from China. With a crude throughput of 19 million metric tonnes, ‘s operating profit in the O2C segment rose 40% sequentially to ₹19,888 crore.
However, O2C profitability has been a tad lower than Street expectations due to the discount differential on Russian crude, with the actual discount lower than anticipated. This prevented robust margin expansion.
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The operating margin of O2C was at 12.30% in the June quarter, nearly 200 basis points higher than the last fiscal average. Better O2C profitability aided its contribution to the total operating profit.
Typically, a $1 increase in GRM results in $400-500 million in incremental operating profit for RIL. The earnings boost from the recent surge in GRM is largely considered a one-off as the consensus operating profit for the remaining three quarters is lower than the first. The Street is working with a GRM of $11-12 per barrel. Singapore GRM has started moderating lately.
RIL’s telecom business posted 5% sequential revenue growth owing to the full impact of tariff hike and subscriber addition. Jio’s average revenue per user rose 5% sequentially and the net addition of subscribers rose after contracting for three quarters in a row. Operating profit climbed 5% with a margin of 50%.
Besides, retail continues to maintain its momentum on footfalls and network expansion. Store footfalls reached 19% above pre-Covid levels. Operating profit rose to ₹3,987 crore, up 9% sequentially.
The stock outperformed the Nifty 50 so far this year. An immediate trigger will be any major announcement at the upcoming AGM.
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