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Reliance Petro: Finally, itís a refinery - Views on News from Equitymaster
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  • Jul 31, 2002

    Reliance Petro: Finally, itís a refinery

    Reliance Petroleum Ltd. (RPL) largely achieved turnover growth in FY02 by ramping up utilisation rates. Operating above rated capacity, elbow room for volume growth is limited. Over the past four quarters, the company has reported negative to single digit sales growth, which reflects strain on topline. With the benefit of hindsight, markets were over optimistic on smooth roll out of the company's growth plans.

    (Rs m) 1QFY02 1QFY03 Change
    Sales 88,650 94,740 6.9%
    Other Income 240 960 300.0%
    Expenditure 79,560 86,740 9.0%
    Operating Profit (EBDIT) 9,090 8,000 -12.0%
    Operating Profit Margin (%) 10.3% 8.4%  
    Interest 2,430 1,940 -20.2%
    Depreciation 1,990 1,920 -3.5%
    Profit before Tax 4,910 5,100 3.9%
    Extraordinary items - -  
    Tax 350 300 -14.3%
    Profit after Tax/(Loss) 4,560 4,800 5.3%
    Net profit margin (%) 5.1% 5.1%  
    No. of Shares 4,753 5,202  
    Diluted Earnings per share* 3.5 3.7  
    P/E Ratio   5.9  

    The company has managed to further augment operating rates to 111% for quarter ended June '02, as compared to 108% in the corresponding period of the previous year. Throughput has increased by 2.1% YoY. Demand, both global and domestic, remaining flat for the concerned period, volumes are likely to have been generated through exports. The slower demand, however seems to have reflected on the inventory, which has increased. International petroleum prices did firm up during the quarter, but on YoY basis the increase is not likely to be significant.

    Refining margins in the industry are likely to have fallen on YoY basis, which has led to lower operating margins. Raw material costs, which account for 90% of operating expenses, have increased by 10.8% YoY. Interest costs are lower for the period, as the company is likely to have re-financed high cost debt with low cost borrowings. Other income has increased considerably. Investments of large cash flows generated over the past two years are likely to have yielded returns. Adjusting for other income, pre-tax profits would be lower by 11%.

    RPL has been granted marketing rights of aviation turbine fuel (ATF) and has applied for rights of other petroleum products including petrol, diesel, LPG and kerosene. The company has entered into a two year agreement with India Oil (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL) to evacuate an estimated 13 MMTPA of products. Nevertheless, as per reports, RPL will independently foray into retailing of transportation fuels. Also, the company is likely to be a keen contender in tendering for BPCL and/or HPCL. This could result in significant expenditures over the next two years.

    At Rs 22, the scrip is trading on a multiple of 5.9x 1QFY03 annualised earnings. Valuations of the company have dropped from 20x earnings over the past two years. Merger of RPL with RIL is awaited, as the scheme is pending approval of the Gujarat High Court. The merger ratio is 1 share of RIL for 11 shares in RPL.



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