|Cash from cash, not gas|
|Saturday, 21 April 2012 08:05|
KG Basin adds to RIL's woes, other income helps
Despite an increase in gross refining margins from $6.8 per barrel in the previous quarter to $7.6 in Q4FY12, RIL delivered a 21.2% fall in net profits compared to Q4FY11. While the R4,236 crore net profit wasn’t too far from what the market has already priced in, RIL’s profits looked much better because of the cash generated from the BP stake sale. For the year, the company’s statement said, this doubled ‘other income’ from R3,052 crore in FY11 to R6,192 crore in FY12, and from R917 crore in the March quarter in FY11 to R2,295 crore in March FY12—as a percentage of profits before tax, this rose to 42.3% in the March FY12 quarter as compared to just 13.7% in the March FY11 quarter (for FY12, it was 24% versus 12.1% for FY11).
While lower output from the KG Basin resulted in a 36.5% fall in sales and a 39.4% fall in EBIT for the quarter as compared to that in the previous year, the BP sale helped in reducing the amount spent on depreciation significantly, from R3,387 crore in March FY11 to R2,659 crore in March FY12—RIL’s share of profits from the field, however, also fell proportionately due to this. The poor news for RIL was not restricted to the KG Basin and, thanks to the European crisis, refining EBIT fell 32% over a year ago despite a 21.5%increase in refining revenue—they were marginally higher over the December quarter though.
RIL’s partnership with BP, inked about a year back, the company hopes, will help shore up production and restore it to the expected levels of 60 mmscmd, last seen in March 2010, but that could take a while since the company has indicated that drilling at other wells may take a couple of years or more. That apart, further exploration activity could also be pushed back till a joint assessment is taken up by the partners. In the meantime, RIL’s run-in with the government on production costs at the KG basin, which the government says, are inflated, isn’t helping matters—the company has filed for arbitration against the government since, reportedly, the government wants to disallow $1.2 bn of expenses RIL has claimed.
In which case, there are few triggers to call for a re-rating of the stock—there is little clarity over when the government will accede to RIL’s demand for higher gas prices. Most analysts are disappointed with RIL’s foray into spaces such as retail, telecom or financial services since they feel these may not create adequate value for shareholders, certainly not in the immediate future. RIL’s $8.5 billion non-core portfolio, CLSA points out, has been a drag on performance and for investors to start liking the stock once again—it gave a record 85% dividend this time around—the company needs to focus on its core area of energy. The company’s buyback programme has helped support the stock, but the market is still looking for clarity on how RIL plans to invest its R70,000 crore-plus cash hoard.