RPL: The heat is on - Views on News from Equitymaster

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RPL: The heat is on

Oct 30, 2001

The sluggishness in the Indian economy leading to a marked slowdown in refinery throughput seems to be reflected in the topline growth of Reliance Petroleum Ltd. (RPL). Despite the adverse industry conditions the company has been able to sustain operating rates much above industry averages.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Sales 83,250 84,660 1.7% 143,080 173,310 21.1%
Other Income 700 490 -30.0% 830 730 -12.0%
Expenditure 75,470 76,780 1.7% 129,120 156,340 21.1%
Operating Profit (EBDIT) 7,780 7,880 1.3% 13,960 16,970 21.6%
Operating Profit Margin (%)9.3%9.3% 9.8%9.8% 
Interest 2,840 2,460 -13.4% 4,560 4,890 7.2%
Depreciation 1,620 2,080 28.4% 2,970 4,070 37.0%
Profit before Tax4,0204,43010.2%7,2609,34028.7%
Extraordinary items - 600   - 600  
Tax 300 320 6.7% 540 670 24.1%
Profit after Tax/(Loss) 3,720 4,110 10.5% 6,720 8,670 29.0%
Net profit margin (%)4.5%4.9% 4.7%5.0% 
No. of Shares (eoy) 4,300 5,202   4,300 5,202  
Diluted Earnings per share*3.53.2 3.13.3 
P/E Ratio 9.3  8.8 
* annualised      

The company has posted impressive growth in gross sales for first-half ended September '01. The largest greenfield refinery in the world, RPL, commenced operations at the start of fiscal '01. With stabilisation of operations the company has been able to achieve higher operating rates. Capacity utilisation, which was 86% in 1QFY01, has consistently ranged near 100% levels subsequently. This lead to a considerable rise in financials for 1QFY02, which is reflected in the half-yearly growth rates. The company achieved an operating rate of 107% in the concerned quarter.

Sales have grown in tandem with operating expenses, which has enabled the company to sustain operating margins. Raw material expenses have declined by 1.7% YoY, which has prevented an erosion in margins. The company could have benefited from the marginal decline in crude prices. However, for 1HFY02, raw material expenses continued to be higher by 23.5%. Operating profits were supported by increased volume sales. Also, the company had benefited from petrol (motor spirit) exports to the U.S leading to higher realisations.

In July '01, the outstanding equity shares of the company increased by 449 m on account of conversion of warrant equity shares. The warrants could have been attached with debentures, which are likely to have matured leading to lower interest burden. Outstanding shares at the end of FY01 were 4,753 m.

The extra-ordinary item is towards receipt of insurance claim of Rs 600 m towards loss in profits from business interruption arising from the Guajart earthquake. The company has been exempted from income-tax for a period of seven years. The tax provisioning is towards minimum alternative tax (MAT).

At Rs 29.4 the scrip is trading on a multiple of 8.8x 1HFY02 earnings. The valuations in the last six months have declined. The stock was trading at 16.5x FY01 earnings at start of the fiscal.

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