Reliance posted results for Q4 2013 yesterday and it wasn’t quite that exciting for me. Market reports were that they “beat estimates” but I think I would rather have whatever these estimators are smoking, than believe in what they’re saying.
Revenue Stalls, Profits Up on Lower Base
Revenue declined on a QoQ basis, but was up marginally year on year. However, profits went up more than 31% on a much lower base last year.
EPS went up 34% in the quarter, and ended the year at +6% at Rs. 64 per share, because of the buyback they had done in the last year.
Segment Results show slowing down everywhere
At a segment level two of the three major segments show lower revenue, while petrochem (lowest margin) shows a 4% revenue growth. EBIDTA margins at the refining segment are up more than 50% year on year, but less than the last two quarters.
This could be due to declining crude prices where the toplines will slow, and margins will eventually have to follow.
Continuing Downtrend in Oil and Gas E&P
Exploration and Production of Gas and Oil has been declining for a few quarters. This one is no different.
It looks like this will continue for at least a year until gas prices are renegotiated, and will most probably change only after elections next year.
Refining Margins Grow to $10.1
Gross Refining Margins are up to $10.1 per barrel. This is a cyclical and depends on a number of factors (such as if other refineries are inactive, the heavy-light crude differential and absolute crude prices). Some of these factors will be against Reliance in the next quarter as the spread reduce.
Petrochem Production Goes Down
Despite Petrochem revenues having gone up, the volumes produced seem to be declining. At 5.4 MT, this is the lowest production in a quarter since March 2011.
Cash Reserves are Strong
For the third quarter in a row, cash reserves remain higher than debt levels, giving some degree of comfort.
You might wonder why they have so much debt if they have all that cash, but much of their debt is at extremely low rates and they may be able to get a higher yield on their cash. I’ve mentioned this before (Reliance issues perpetual debt) and I believe they have made some of their numbers – around 300 cr. or such – through higher interest income.
Retail and Telecom
They say they have gone EBIDTA positive on retail, earning 78 cr. on revenues of 10,000 cr. (up 42%) But profits are definitely lower (this is capex intensive so depreciation costs will be high, and interest costs for this business are also high). Same store sales were up 7% to 18%.
They’ve opened about 184 new stores, but I know that they’ve shut down at many locations in Bangalore; I can glean that their net store count stands about 150 up from last year.
Their telecom venture seems to be unfolding, as they tie-up with Reliance Communications for their 4G rollout. However, since this has been three years in the offing, I don’t want to predict a boom from it in the coming year. In the long term, though, this has serious potential.
Overall, the results aren’t impressive. Current capital deployment shows a decline in output, and they have tons of cash in the bank. They need to invest in new and better technology; however, Reliance isn’t known for its research and they’ll have to find the next big thing by piggybacking their enormous capital on a growing industry dominated by cash strapped players. Both telecom and retail qualify, but you never know if it really will be something else.
(Also see: Q3 FY2013 results in charts)
