Reliance Industries: Relying on refining margins
Even as Reliance Industries delivered a great beat in the June quarter, the pertinent questions are whether that will sustain. As of now, analysts don’t see inventory gains recurring for the current quarter.
Reliance Industries Ltd (RIL) had reported a premium of $3.1 per barrel over the Singapore gross refining margin (GRM) for the March quarter. For the June quarter, that premium was expected to expand further. However, the reported premium of $6.5 per barrel, the highest in the last eight years according to RIL, far exceeded Street estimates. Most analysts had estimated the company’s GRM to be in the range of $9.5-10 per barrel. On the contrary, RIL’s GRM in the June quarter came in at $11.5 per barrel.
There are a couple of reasons for this outperformance. One, as Alok Agarwal, chief financial officer at RIL, said, “We did have a build-up in inventory towards the end of last quarter and we were able to liquidate that inventory at better prices than at the end of the last quarter”. Secondly, middle distillates, which include gas oil (diesel) and aviation fuel and account for nearly 45% of the company’s product slate, performed better. “Our crude sourcing was competitive too,” pointed out Agarwal.
Even as the GRM beat is strong, not everybody is impressed. “There’s no point in taking a call on GRM alone,” said independent analyst S.P. Tulsian. He added that looking at inventory at the end of the last fiscal year, it is likely that inventory gains, perhaps to the extent of approximately $2.5 per barrel, are included in the reported GRM.