Pumped up RIL profit margins
Posted by egovindia on August 4, 2006
Pumped up RIL profit margins
We don’t have to go deep in to Reliance annual reports and accounts to get an understanding of it modus operandi to “Bride” in power government to get concessions and free assets.
But most vital disclosure is at the end of the following message. RIL spent Rs.4000 crores to create distribution network of 1290 retail outlets. This is Rs.3 crores per retail outlet. RIL requires at least 5000 of such outlets to serve the country. So required about Rs.15,000 crores low return investment which it had cleverly deferred for at least 6 years with the connivance of political leaders who directed public sector to sell RIL produce.
All the RIL retail outlets are located in prime locations while Public Sector outlets are spread countrywide- even Kargil or Manali or such locations where only few people go for refueling.
RIL has been most irresponsible in backing out of agreements to supply gas to NTPC and Anil Ambani companies.
It got free land, tax exemptions and illegal incentives RIL conduct is most deplorable.
Rising input, staff costs hit RIL profit margins
TIMES NEWS NETWORK [ FRIDAY, JULY 21, 2006 03:14:28 AM]
MUMBAI: Higher petrochemical prices helped Reliance Industries post a 10.7% rise in net profit in the first quarter of FY07.
Realisations of polyethylene were higher by Rs 6.1 per kg year-on-year while those of polypropylene were higher by Rs 4.2 per kg, according to research by India Infoline.
Despite the good results, analysts and investors will be keeping a wary eye on raw material prices and on margins. Reliance is India’s biggest producer of petrochemicals and petroleum products.
Its world-scale plants, huge capacities, competitive pricing tactics and dominant position in the local market have so far helped it ride out the roller-coaster of commodity price cycles. But the past nine months have been anything but smooth.
Soaring crude oil prices have pushed up input costs to astronomical levels, squeezing margins and affecting profitability. After posting a growth of 61% and 42% in the first two quarters of FY06, Reliance Industries’ profit has slowed by 9-10% in the past two quarters.
Unlike global giants such as Exxon Mobile or a Royal Dutch/Shell, Reliance Industries does not have a huge exploration and production business to capitalise on the crude price surge. It buys crude for processing at its refinery and depends upon higher prices of fuel such as diesel and petrol to offset the high raw material prices.
But with the government reluctant to allow oil companies to increase prices, Reliance Industries and other oil companies have had to bear the brunt of the soaring crude oil prices.
Though Reliance Industries’ gross refining margins were higher at $12.4 per barrel than the $11.4 per barrel recorded in the corresponding period last year, and higher than other global benchmarks, overall operating margins were affected by the surging raw material costs.
The refining business accounted for 67% of Reliance Industries’ turnover and 62% of the PBIT during the quarter. Refining margins for Reliance have averaged $9-11 per barrel for the past several quarters, higher than the benchmark Asian margins.
Constrained refining capacity has lead to a huge premium on petrol and diesel prices, according to the London-based Barclays Capital Research. The refinery throughput during the quarter was 7.5m tonnes compared to 7.9m tonnes for the first quarter last year.
The throughput was lower due to a planned maintenance shutdown during the quarter. “Despite higher selling prices, our operating profits were impacted due to higher raw material cost. Net operating margin for the quarter was 17.3% compared to 20.1% in the previous quarter,” a company statement stated.
Margins were also affected by higher employee cost (up 26% to Rs 318 crore), and higher raw material cost (up 34% to Rs 18,152 crore). Among the major setbacks for Reliance Industries during the quarter was its loss of market share in the fuel retail business.
High crude oil prices have resulted in higher prices of products like diesel and petrol but the retail prices in India have been kept at low levels.
While the public sector oil companies are being compensated through issue of oil bonds and assistance from upstream producers, Reliance Industries had to resort to an increase in the retail price of petrol and diesel, which has led to a drastic fall in its share of the market.
The company has invested about Rs 4,000 crore in putting up its retail network, primarily at highways all over the country. Reliance had commissioned 1,218 petrol pumps by the end of FY06 which had increased to 1,290 by the end of the first quarter of FY07.
The company is likely to go slow on fuel retailing till there is clarity on the petro-pricing front.