Higher Petrochemical Volumes and Uptrend in Prices of Refined Products

Reliance Industries Ltd. (RIL) has achieved consolidated revenues of Rs. 430,731-crore ($66.1-bn), an increase of 30.5%, compared to Rs. 330,180-crore in the previous year. Increase in revenue is primarily on account of higher volumes with start-up of petrochemicals projects and uptrend in prices of products in refining and petrochemical businesses. Product prices were led by 18% year-on-year (y-o-y) increase in Brent oil price to $57.5/bbl.

Operating profit before other income and depreciation increased by 38.9% on a y-o-y basis to Rs. 64,176-crore ($9.8-bn) from Rs. 46,194-crore in the previous year. Robust refining and petrochemicals margin environment, volume growth in petrochemicals and rapidly increasing contribution from consumer businesses led to significant rise in operating profits for the year. Gross refining margins (GRM) recorded a nine-year-high of $11.6/bbl, whereas Petrochemicals EBIT margin were at six-year high level of 16.9%.

Profit after tax was higher by 20.6% at Rs. 36,075-crore ($5.5-bn), as against Rs. 29,901-crore in the previous year. Higher interest and depreciation charges with the commissioning of projects across businesses resulted in relatively lower growth in profit after tax.

Petrochemicals: 35.5% increase in revenues

FY18 revenue from the Petrochemicals segment increased by 35.5% y-o-y to Rs. 125,299-crore ($19.2-bn), primarily due to higher volumes from new para-xylene, off-gases cracker (ROGC) and it’s downstream units (PE and MEG). Petrochemicals segment EBIT increased sharply by 63.0% to its highest ever level of Rs. 21,179-crore ($3.2-bn). Earnings was supported by favourable product deltas across integrated polyester chain, PP, PVC along with volume growth. EBIT margin was higher by nearly 300-bps to 16.9%, reflecting RIL’s strengthened cost positions across product chains and unmatched feedstock flexibility.

During FY18, PP prices were up 11% with healthy growth in demand. PP deltas also strengthened by 19% during the year. PE and PVC prices were up by 3% and 4% respectively in FY18, however PE deltas softened marginally due to stronger naphtha prices. PVC deltas strengthened by 10% in FY18 and reached 15-year highs during the quarter amid soft EDC prices in the high caustic price environment.

In India, polymer demand registered growth of 7% during FY18 supported by healthy economic indicators, infrastructure boost and higher disposable income. PP and PE registered a growth of 10% and 9% respectively in FY18 mainly in the segments of automotive, appliances, packaging, pipe and milk packaging. PVC demand recovered towards the end of the year and posted a growth of 2% in FY18. PVC demand increased sharply by 18% during 4Q FY18 y-o-y largely driven by pipe and calendaring sector.

During FY18 polyester chain margins remained healthy with slower capacity growth relative to demand growth. This supported healthy operating rates and favourable margins for integrated players. Intermediate markets strengthened, tracking oil and naphtha markets. FY18 PX price was higher by 5% y-o-y, however margins were weaker by 10% y-o-y due to higher feedstock prices. PTA price firmed up 9% y-o-y in line with the upstream prices, supported by tight supplies and firm demand. PTA delta firmed up 31% y-o-y and remained above five-year average. MEG markets also remained buoyant with tight supplies and strong demand. FY18 price firmed up 23% y-o-y and delta was higher by 26% y-o-y.

Polyester markets remained healthy and producers were able to pass on increase in cost to the downstream units. FY18 PFY price increased 13% y-o-y with delta firming by 14% y-o-y. The Chinese ban on imports of recycled feed continued to support virgin polyester markets – as a result, PSF FY18 prices increased by 17% y-o-y; with delta strengthening by 40% y-o-y. Global PET markets remained tight due to shutdowns in western markets, which aided Asian players. FY18 PET prices firmed up by 14% y-o-y and delta gained by 19% y-o-y.

Refining & Marketing: 22.0% increase in revenues

FY18 revenue from the Refining & Marketing segment increased by 22.0% y-o-y to Rs. 306,095-crore ($47.0-bn), primarily on account of higher crude prices during the year. Segment EBIT increased by 3.2% to a record level of Rs. 25,869-crore ($4.0-bn), supported by higher GRM of $11.6/bbl as against $11.0/bbl in the previous year. RIL’s GRM outperformed Singapore complex margins by $4.4/bbl.

Oil & Gas: 0.3% increase in revenues

FY18 revenues for the Oil & Gas segment increased by 0.3% y-o-y to Rs. 5,204-crore. The marginal rise in revenue is primarily due to ramp-up in coal bed methane (CBM) operations. Volumes from conventional fields and US shale were lower on account of natural decline and slowdown in development activity. Segment EBIT was at Rs. (1,536)-crore as against Rs. (1,584)-crore in the previous year. For the year, domestic production (RIL share) was at 78.9 Bcfe, down 16.9% y-o-y and in US Shale (RIL share) business was 139.7 Bcfe, down 19.7% y-o-y basis.