Reliance Industries consolidated net profit for the June quarter rose 13.7 percent year-on-year to Rs 5957 crore, beating the average of a CNBC-TV18 analyst poll pegging the number at Rs 5400 crore.
Manish Sonthalia Sr VP & Head Equities- PMS Motilal Oswal Asset Management Co Ltd, Nitin Tiwari VP- Institutional Research Religare Capital Markets and Piyush Jain, Equity Research Analyst - Energy, Industrials and Utilities, Morningstar India discuss the first quarter numbers of the oil and gas major.
Below is the transcript of Piyush Jain, Manish Sonthalia and Nitin Tiwari's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Q: A word on gross refining margins (GRMs) - USD 8.7/bbl, how would you look at that?
Jain: That is inline. If I look at the numbers – we were estimating close to USD 8.8/bbl GRM plus minus USD 0.1/bbl, so that's completely inline. However, now the revenue has come higher which means that the capacity utilisation should have gone up, so that has driven the beat on the refining. The oil and gas and refining together are fulfilling the beat which we are seeing on the expectations.
Q: Coming to shale gas business, they have delivered a performance of Rs 559 crore for this segment in terms of EBIT. How would you look at that?
Jain: I think continuation on the trend. We believed that the shale gas would take over the KG-D6 gas at present because we are not seeing that improvement at present in the KG-D6 gas. I think the number of wells that they are drilling; the trend is quite stable at present.
Q: What is your sense - oil and gas clearly is leading the surprise, what is your first comment on the numbers?
Sonthalia: USD 8.7/bbl GRM certainly is slightly better than our expectation of USD 8.5/bbl. The other income is also in line with the expectations of around Rs 2,100 crore. Clearly, it is the refining margins which have led the flight up on the numbers.
Ekta: What is your expectation in terms of GRMs going forward considering that they haven't been able to repeat the USD 9.3/ bbl that they did in the quarter before that? What is the trajectory for the GRMs for the remaining part of the fiscal, at least a near-term visibility for this quarter?
Sonthalia: In terms of near-term visibility exchange rate would get normalized. Last year same time we were looking at 56/USD and today we are at 62/USD. Therefore, second quarter onwards 62/USD is what the exchange rate would be like. For GRMs, the EBIT numbers on the refining side should be closer to around Rs 3,600 crore for the current quarter. One also needs to look at the petrochemical margins that have seen a dip. The same trajectory holds for the current quarter as well.
In terms of volumes from the KG-D6 it was expected around 13 mmcmd, but it is not going to be materially different from the numbers reported in the quarter gone by.
Q: What is your first take on the numbers? From the first look, it looks like refining, petrochemical is in-line with estimates, refining is slightly higher but oil and gas is a bit of a positive surprise?
Tiwari: Basically, the surprise that you see on the exploration and production (E&P) side is due to consolidation of shale gas earnings that was done in the previous quarters. So, that is the surprise that you are seeing in the E&P earnings.
Typically, the point remains that the results are in-line with the expectations because the expectations were built around the domestic earnings. So when shale gas gets added that is how you see a higher profit after tax (PAT) of Rs 5,900 odd crore.
Q: So what is your call on the stock now from current levels?
Tiwari: We have a hold recommendation on the stock with a target price of Rs 950.
Disclosure: Network 18, which publishes moneycontrol.com, is now part of the Reliance Group
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