Reliance Industries Limited (RIL) posted its results for the First Quarter of FY2015 and these results have surpassed all expectations. The company posted a billion dollar profit, the first in its illustrious history. However, there seems to be a huge scope for further growth at the Mukesh Ambani owned company on account of its ongoing expansion of its petrochemical production capacity is complete.
RIL’s share gas business in the United States; overtook its Indian counterpart in terms of revenue in the first quarter of FY 2015. This many believe was due to several factors. Dhaval Joshi, an analysts with brokerage firm Emkay was quoted as saying, “RIL’s decent performance during the quarter has largely been the result of lower depreciation and interest cost. However, in petchem, it is too early to expect a sustained recovery in demand and margins as demand still remains a concern. Any weakness in demand could impact a sustained margin recovery.” However, nearly all analysts in this domain agree that while Petrochemicals and shale gas represent a huge opportunity in the future, they won’t give any massive returns in the immediate future.
That being said, various expansions at RIL are structured in a staggered manner. What this means is that the balance sheet will show a significant spike in revenue growth only after a few years. Two of such expansions, refinery off-gas cracker and petcoke gasification are expected to contribute significantly to the company’s revenues. The off-gas cracker process produces ethylene, which is used as a raw material for other products. Petcoke gasification will reduce RIL’s dependence on external natural gas to run its refinery. RIL is spending $8 billion, or Rs.48,000 crore, to expand the aggregate capacity of its 20-odd petrochemical products by 66%. The products include ethylene, polyethylene or polythene (PE), paraxylene (PX) and purified terephthalic acid (PTA). All of this will bear fruit only by 2015-16 according to RIL’s CFO, Alok Agarwal.
Sales of RIL’s shale business in the US stood at Rupees 1,617 Crores, up 55% from the previous year and exceeded the domestic sales of Rupees 1,557 Crore by 4%. Agarwal expects RIL’s growth to be at around 20% in terms of revenues and profits based on estimates. In terms of investments, RIL has crossed $7 billion till date.
Reliance Industries estimates that by commissioning new capacities, the cost benefits of liquefied petroleum gas substitution in the Jamnagar Complex, will all contribute to the estimated Rupees 11,000 Crore addition to the company’s Ebitda. The shale gas business will also experience continuous growth and this, along with the petrochemical and natural business will surely contribute in boosting the profit well past the billion dollar mark in FY 2015.