Reliance Industries, owner of the world's largest refining complex, reported improvement in refining margins during the April-June quarter despite a decline in regional benchmarks, Moody's said today.
"RIL reported an EBITDA growth of 3 percent during the quarter ended 30 June 2016. Improvement in earnings was aided by stronger gross refining margins (GRM) and higher product spreads in the petrochemical business," it said.
The company earned USD 11.5 on turning every barrel of crude oil into fuel compared to a GRM of USD 10.8 per barrel in the immediately preceding quarter while the Singapore benchmark slipped to USD 5 from USD 7.7 per barrel over the same period.
"RIL's GRM out-performed the regional benchmark by USD 6.5 a barrel during the quarter which was the highest in the last eight years," Moody's Investors Service said.
The improvement in RIL's gross refining margin was mainly attributable to the weakness in fuel oil cracks. A crack is the profit margin between the refined products (in this case fuel oil) and crude oil.
Its Jamnagar refineries in Gujarat produces no or negligible amount of fuel oil as a result of which a weakness in fuel cracks is favorable for RIL's refining margins.
Improvement in gasoil cracks during the quarter also supported RIL's GRMs.
"We expect RIL's GRM to improve by another USD 2 per barrel, once it completes its ongoing projects within the energy business by fiscal 2017 while the Singapore complex is expected to remain range bound within USD 5-6 over the next 4 -6 months," Moody's said.
On a year-on-year basis, RIL reported an earnings growth of 17 percent in April-June backed by earnings improvement in the refining and petrochemical segment.
"As RIL continues to invest towards its ongoing projects in the energy and consumer businesses, borrowings remain on an uptrend," it said adding the company's net debt increased to Rs 95,900 crore as of June 2016 compared to Rs 90,400 crore in March 2016.
Moody's said it expects RIL's credit metrics to improve once the ongoing projects are complete and start contributing to earnings over the next 12-18 months.
"We expect fiscal 2018 to be the first full year for cash flows coming in from the next projects," it said.
RIL's petrochemical business saw an earnings growth of 4 percent during the June quarter. Improvement in earnings was attributable to increased polymer demand which boosted product deltas. Higher natural rubber prices led to increased demand for synthetic rubber which in turn led to higher elastomer.
On a y-o-y basis, the petrochemical segment saw a 20 percent growth in earnings backed by higher production volumes.
"We expect earnings from the petrochemical segment to improve further as the company completes its ongoing expansion within the petrochemical segment over the next 12-18 months," it added.
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