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Reliance Petro: High octane performance

Jul 30, 2001

Reliance Petroleum Ltd. (RPL) has reported a strong financial performance for the first quarter of fiscal '02. Sales, which declined in 4QFY01 have spurted by 18.1% QoQ. However, operating margins have declined by 100 basis points over this period.

(Rs m) 1QFY01 1QFY02 Change FY01
Sales 59,830 88,650 48.2% 309,630
Other Income 130 240 84.6% 2,200
Expenditure 53,650 79,560 48.3% 278,450
Operating Profit (EBDIT) 6,180 9,090 47.1% 31,180
Operating Profit Margin (%)10.3%10.3% 10.1%
Interest 1,720 2,430 41.3% 10,320
Depreciation 1,350 1,990 47.4% 6,610
Profit before Tax 3,2404,91051.5%16,450
Extraordinary items - -   (640)
Tax 240 350 45.8% 1,170
Profit after Tax/(Loss) 3,000 4,560 52.0% 14,640
Net profit margin (%)5.0%5.1% 4.7%
No. of Shares (eoy) 4,300 4,753   4,749
Diluted Earnings per share* 2.5 3.8   3.1
P/E Ratio   11.6   14.4

The company has reported a strong topline growth YoY. This is mainly due to the processing of more crude oil. Utilisation rates increased from an estimated 85.9% in 1QFY01 to 108% for the quarter ended June '01. Therefore, throughput increased by 1.5 MMTPA to 7.3 MMTPA in 1QFY02 from 5.8 MMTPA in the concerned quarter of the previous year. Consequently, output increased by 25.8% YoY. The performance is commendable considering the operating environment. Core sector growth dipped to 1% in 1QFY01 from 9.3% in the same quarter of the previous year. The company has reported that while light distillates -- petrol and LPG -- reported a growth of 12%, middle distillates -- diesel, kerosene and ATF -- consumption dropped by 4.3% for quarter ended June '01. Overall consumption of petroleum products in the concerned period fell by 0.5%. As per reports, industry throughput grew by 6.4% YoY compared to 34.5% in 1QFY01.

The company also benefited from the strong petrol prices prevailing in the Western markets during the high consumption summer months. Fear of large inventory depletion led to petrol prices soaring. RPL registered exports of Rs 14.4 bn during the concerned period. RPL's refinery also meets Bharat - II environmental norms, which are similar to Euro - II norms. The realisations on diesel meeting these stringent standards are also higher. Bharat - II norms have been adopted in Mumbai and the National Capital Region (NCR). RPL met 40% of the NCR diesel requirement.

The rise in operating expenses has matched the increase in sales. Despite better realisations on exports and Bharat - II sales operating margins YoY have remained unchanged. Higher operating costs has eaten into the margins. The continuing firmness, especially over 1QFY02, seems to have taken a toll on the margins, as oil prices quoted in the region of $26 -$29 / barrel. Raw material costs, which represents 89% of total costs (81% in 1QFY01), increased by 62.8% in the concerned period. Staff costs and other expenditure increased by 92.2% YoY and 34% YoY respectively.

Interest and depreciation also have increased in tandem with growth in sales. The higher interest costs could represent increased working capital requirements with increased business volumes. In 1QFY02, the company tied-up a foreign currency term loan of $ 750 m (Rs 35 bn). The company's paper attracts rating of AA+, which is one notch below the highest safety rating of AAA.

Contribution to PAT has also been made by a spurt in other income and a decline in effective tax rate. The effective tax rate has declined by 30 basis points to 7.1%. At Rs 44 the stock trades on a multiple of 11.6x 1QFY02 annualised earnings. The equity share capital has increased to 5,202 m with the conversion of warrants in July '01. Consequently, 1QFY02 annualised EPS stands further diluted by 8.6% to Rs 3.5 with the stock trading on a multiple of 12.6x diluted 1QFY02 annualised earnings.

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