X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
RIL: In choppy waters - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

RIL: In choppy waters

Jan 12, 2002

Reliance Industries Ltd. (RIL) is set to announce its third quarter results for FY02 on the last day of January '02. While the nature of difficulties changed over the past twelve months, the company continues to operate under a challenging business environment. On a sequential basis, topline of the company has been sliding over the past four quarters. Though one has to note that merchant sales on behalf of Reliance Petroleum Ltd. (RPL) has ceased in the current fiscal. While downstream petrochemical product prices -- polyester & polymers -- did exhibit certain amount of resilience during the first half of calendar year 2001, considerable weakness was experienced in the last quarter. Also, start to the New Year has not been any different. RIL has executed another round of prices cuts, primarily in synthetic fibres.

Challenges in the previous fiscal were primarily on the cost front, as naphtha prices, reflecting the firmness in oil markets, increased dramatically. In FY01, operating margins of RIL were lower by 150 basis points but turnover reported impressive growth. The higher sales were largely driven by higher realizations, merchant sales and commissioning of fresh capacity at the Jamnagar complex.

In the current fiscal, oil prices have registered a substantial decrease as compared to the previous year. In the last three months, post-September 11, oil prices have skidded by an estimated 30%, which is likely to be reflected in naphtha prices. This may have offered some respite to the company's margins. That said, while naphtha prices for 2QFY02 were lower by 8% YoY, final product prices slipped by double digits. Consequently, net-net, pressure on margins is likely to have remained.

Adding to the woes is the downturn in the global economy leading to weakness in the petrochemical cycle and a simultaneous slow down in the domestic market, which is making life tough for RIL. In 2QFY02, the company reported lower sales by 5.5% excluding merchant sales in the previous year. Since then, the environment in the petrochemical industry, especially downstream, does not seem to have changed dramatically.

Product prices weakening
  3QFY01 3QFY02  
POY 65.23 55.37 -15.1%
PSF 53.83 45.08 -16.3%
PTA 34.08 28.23 -17.2%
MEG 34.10 27.50 -19.4%
PE 48.60 40.27 -17.1%
PP 43.92 38.25 -12.9%
PVC 42.27 32.72 -22.6%
PET 56.00 57.00 1.8%
LAB 53.90 53.90 0.0%

Product prices have been cut in January '02, as compared to last month. The move, it seems, is to revive the sluggish demand in polyesters and re-capture market share in polymers. RIL had reported a drop in market share for polymers and polyester intermediates. The stabilization of operations at Haldia Petrochemicals Ltd. and the subsequent filling up of capacity could have eaten into the polymer market share, especially in the Eastern region. Competition in polyester intermediates, PTA (purified terephthalic acid), has intensified with the Mitsubishi plant ramping up utilization rates. The sharp drops in prices seem to reflect the difficult business environment.

Also, cumulative exports for the first six months of the current fiscal have declined in every month. Textiles constitute the third largest share of India's exports basket. Readymade garment exports, a component of textiles, is reportedly most affected. Also, synthetic textile exports, for the first five months of FY02, have reportedly declined by 5% YoY. The slowdown in export markets could have added to the pressure on pricing.

The polyester business is likely to be under severe strain. The cotton crop, a substitute product, has reportedly registered a bumper year, which has led to softness in prices. With a decline in prices there could be shift towards cotton wear. This is likely to keep polyester prices under check. Based on these numbers, the current quarter is likely to be equally, if not more, challenging for the company compared to the preceding quarter.

Naphtha prices, reportedly, are once again firming up. This could be due to oil production cuts initiated by the Organisation of Petroleum Exporting Countries (OPEC) from the New Year. Also, non-OPEC members have promised to support the move by pulling out 450,000 barrels/ day from oil markets. The run in naphtha prices this time around could be more debilitating considering the weak demand scenario and higher operating capacity.


Equitymaster requests your view! Post a comment on "RIL: In choppy waters". Click here!

  

More Views on News

RELIANCE IND. Announces Quarterly Results (4QFY19); Net Profit Up 9.5% (Quarterly Result Update)

Apr 22, 2019 | Updated on Apr 22, 2019

For the quarter ended March 2019, RELIANCE IND. has posted a net profit of Rs 104 bn (up 9.5% YoY). Sales on the other hand came in at Rs 1,416 bn (up 17.9% YoY). Read on for a complete analysis of RELIANCE IND.'s quarterly results.

RELIANCE IND. Announces Quarterly Results (3QFY19); Net Profit Up 9.6% (Quarterly Result Update)

Jan 18, 2019 | Updated on Jan 18, 2019

For the quarter ended December 2018, RELIANCE IND. has posted a net profit of Rs 104 bn (up 9.6% YoY). Sales on the other hand came in at Rs 1,603 bn (up 56.4% YoY). Read on for a complete analysis of RELIANCE IND.'s quarterly results.

RELIANCE IND. 2017-18 Annual Report Analysis (Annual Result Update)

Nov 28, 2018 | Updated on Nov 28, 2018

Here's an analysis of the annual report of RELIANCE IND. for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of RELIANCE IND.. Also includes updates on the valuation of RELIANCE IND..

More Views on News

Most Popular

I Believe this is the Best Stock to Buy Today (Profit Hunter)

Jul 3, 2019

The languishing small cap space is currently offering a very fertile market to pick up bargains at very attractive prices. This is a perfect opportunity ripe for the picking.

These 3 Smallcap Stocks are Set to Make the Most of Smallcap Rebound (Profit Hunter)

Jul 9, 2019

As the sense of normalcy returns to the markets, the rebound in the quality smallcaps could be huge.

2 Stocks from Super Investor Sanjay Bakshi's Portfolio You Can Bet On... (The 5 Minute Wrapup)

Jul 12, 2019

Despite the current fear prevailing in the markets, both these stocks have the potential to deliver in 4-5 years.

After Disappointing Budget, Here's a Document that Concerns Largecap and Smallcap Investors (The 5 Minute Wrapup)

Jul 8, 2019

A new 'definition' of the stock universe that triggered the smallcap sell-off is back with the latest list...

Union Budget 2019-2020: More Style Over Substance (The 5 Minute Wrapup)

Jul 5, 2019

Did the Union Budget announce measures to stimulate the economy and bolster corporate earnings growth?

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

RELIANCE IND. SHARE PRICE


Jul 16, 2019 (Close)

TRACK RELIANCE IND.

  • Track your investment in RELIANCE IND. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

RELIANCE IND. - ONGC COMPARISON

COMPARE RELIANCE IND. WITH

MARKET STATS