Jump in RIL's interest expenses alarming, says SP Tulsian

For the next quarter, Tulsian believes the regulatory actions against the company remain an overhang for the stock price.

Below is an edited transcript of his interview
Q: What did you make of RIL’s Rs 5703 crore profit? Was it slightly below expectation?

Yes, this is slightly lower than the estimates. But as you have narrated, there is a huge disappointment from the refinery segment. In fact, the petrochemical segment has posted an EBITDA of Rs 2,422, which implies an EBITDA margin of 11.5%. So there is a respectable growth. The expected turnover or the income from the petchem segment was expected at about Rs 18,500 crore, but they have achieved a turnover of Rs 21,000 crore. So it is more than expectations. So even if there is a drop of about 50-55 basis points in the EBITDA margin on the petchem segment, it was covered up by the volume growth of.

So I don’t think that that can really be seen as a disappointment. In fact, I will call it an erosion or a slight marginal decline in the EBITDA of petchem segments, which has largely been taken off or corrected by the improvement in the volume growth.

Coming on the oil and gas front, I think there is slight improvement or better than expected EBITDA margin of 42% plus. But the refinery margin has been a very big disappointment. In fact, going through the financials, I saw that there is increase in the loans of the company. On one hand, the company has a consolidated cash balance of Rs 76,000-77,000 crore, but the interest expenses of the company is rising. So it is very difficult to understand the logic or the idea behind playing on treasury operations. Interest expenses for this quarter stands at Rs 660 crore, compared to about Rs 550 crore for the sequential quarter. So that is again an alarming situation.

Remember that RIL had an inflow of more than Rs 30,000 crore this quarter; Rs 24,000 crore came from BP, Rs 5,000 crore is operational and net profit is Rs 5700 crore. Then you have Rs 3,000 crore depreciation. So if you add all these, it come up to Rs 32,000-33,000 crore kitty. So I am unable to understand how the company is really moving. On one hand, you are trying to make yourself debt free and on the other hand you try to raise your debt inspite of having the huge cash inflow. So this is my broad analysis of the results.

Q: Moving away from the results, we have seen the CBI investigation that many people are concerned of at this point. Do you see that as an overhang? Also, the CAG audit has already happened and there has been a lot of allegations over that too. Do you expect a down leg in the stock price again because of all these overhangs?

A: I have been maintaining my view that I don’t see an upside beyond Rs 850-855 for the stock, even though it closed at Rs 865 on Friday. There is definitely an overhang because of these regulatory actions which you have just now referred to. You never know because it doesn’t come with any advance warning. So that continues to remain overhang.

In fact, in last week there was a lot of talk about it getting initiated. So you have a temporary reprieve from all those regulatory actions. But you cannot take them as buried forever. So I think that overhang will continue to remain on the company.

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