What RIL's Q1 FY15 numbers reveal

Reliance Industries (RIL) has outperformed market expectations by posting 13.3 per cent growth in net profit and 7.3 per cent rise in net sales during the quarter ended 30 June 2014 (Q1FY15) (See: Reliance Q1-FY'15 net up 13.7% at Rs5,957 crore).

In contrast, analysts were expecting the company to report a flat net profit and a rise in sales between 9 and 11 per cent.

RIL achieved the higher than expected rise in net profit from the higher profit before interest and tax (EBIT), which rose 408bps to 27.53 per cent. The cost of raw materials, (including purchase of stock-in-trade and rise in inventory of finished goods) rose at a slower pace at 5.30 per cent compared to sales growth of 7.3 per cent.

The inventory of finished goods rose by Rs726 crore over the Q1FY14 level, which reduced the cost of raw material for Q1FY15. This helped RIL to post profits from operations before other income and finance costs at Rs6,207 crore in Q1FY15 as against Rs5,138 crore in Q1FY14.

RIL, however, surprised analysts by reporting gross refining margins (GRM) for the quarter at $8.7 per barrel (bbl) as against $8.4/bbl. in Q1 FY14 and $ 9.3/bbl. in the fourth quarter ended 31 March 2014. Analysts, however, were expecting GRM of $8.5-8.9/bbl., for the quarter.

While RIL revenue was in the line with expectations, the double-digit growth in net profit came as a pleasant surprise to the markets. The unaudited consolidated results for Q1FY15 show decline in interest cost by Rs433 crore as the company reduced debt by almost Rs3,000 crore during the quarter. Other income, which decline by Rs 418 crore, neutralise interest cost gain.

The net profit at Rs5,957 crore in Q1FY15 has been closer to $1 billion, but the share of other income has been over 25 per cent of  profit before tax. This share is considerably high for the company whose income from operations was Rs410,862 crore for the financial year ended 31 March 2014.

RIL shares are currently underperforming the market and moved up by 27 per cent over a 52-week low compared to a 45-per cent gain for the benchmark indices from their 52-week lows.

Sgment revenue Refining and marketing business
Q1FY15 Q4FY14 Q1FY14
Segment Revenue (Rs crore) 98,081 96,668 91,463
Segment EBIT (Rs crore) 3,814 3,962 2,947
Crude Refined (Mn MT) 16.7 16.3 17.1
GRM ($ / bbl) 8.7 9.3 8.4
EBIT Margin (%) 3.90% 4.10% 3.20%
Petrochemical business
Segment Revenue (Rs crore) 25,398 26,541 23,228
Segment EBIT (Rs crore) 1,863 2,150 1,757
EBIT Margin (%) 7.30% 8.10% 7.60%
Production in India (mt) 5.4 5.3 5.3
KEY FINANCIALS (Rs crore) Q1FY15 Q4FY14 Q1FY14
Net sales 1,04,640 1,03,428 97,503
Cost of raw materials 85,137 85,180 80,845
Other income 1,974 2,097 2,392
PBT 7,676 7,635 6,592
Net profit 5957 5881 5237