By RAKTEEM KATAKEY
Reliance Industries, operator of the worlds largest oil
refining complex, reported first quarter profit that beat
analysts estimates and rose the most in a year after
refining margin widened.
Net income, excluding that of units, rose 5.5% to 56.5
billion rupees ($936 million), or 17.50 rupees a share, in
the three months ended June from a year earlier, Mumbai-based
Reliance said on July 19. That exceeded the 53.7
billion-rupee ($0.891 billion) median profit estimate of 25
analysts compiled by Bloomberg. Sales rose 10% to 963.5
billion rupees ($15.98 billion).
The company controlled by billionaire Mukesh Ambani depends
on earnings from its two refineries to boost profit as
natural gas production from its biggest deposit remains near
the lowest in four years. Higher profit is crucial for
Reliance which is spending 1.8 trillion rupees ($0.030
trillion) to expand its polyester, petrochemicals
and natural gas
businesses and starting a new telecommunications service next
The gas business is crucial for Reliance as the outlook
for refining margins in Asia is not very strong because
demand is falling, said D.K. Aggarwal, New Delhi-based
chairman of SMC Investments & Advisors, which manages
about $100 million of India
n shares. Diversifying
its businesses should benefit Reliance when Indias
economic growth starts reviving.
Indias gross domestic product growth forecast for the
year ending March was raised to 6.3% from a 6% pace by the
Asian Development Bank on July 18 on expectation the new
government will overhaul policy
and spur investments.
Reliance earned $8.7 for every bbl of crude it turned into
fuels in the quarter, compared with $8.4/bbl a year earlier
and $9.3 /bbl in the three months ended March, the company
The company operates two refineries with a combined capacity
of 1.24 million bpd located next to each other at Jamnagar in
the western state of Gujarat. They have the ability to
process cheaper, lower grades of crude into high-value
products for use in Europe
and the US.
Reliance will have to deal with a smaller refining margin as
demand for fuels in Asia slows. Earnings from making diesel
in Singapore, an Asian benchmark, this year will be the
lowest since 2011, according to Wood Mackenzie.
Profit from making diesel in Singapore averaged $16.15/bbl in
the quarter, compared with $16.52 a year earlier and
$17.86/bbl in the preceding quarter, according to data from
PVM Oil Associates in London. On July 9, it fell to the
lowest since December 2010, according to the data.
Reliance shares have gained 9.1% this year, compared with a
21% increase in the benchmark S&P BSE Sensex. The
explorer and refiner is the worst performer on the index in
the past month.
The company plans to spend 350 billion rupees ($5.80 billion)
in the year ending March as part of its 1.8 trillion rupees
($0.030 trillion) expansion
plan, CFO Alok Agarwal
told reporters in Mumbai on July 19. Lower interest cost and
margin in the first
quarter helped boost profit, he said.
The refiner had 815.6 billion rupees ($13.52 billion) of cash
and equivalents as of June 30, invested in mutual finds,
government securities and deposited in banks, according to
the statement. It had debt of 1.4 trillion rupees ($0.023
trillion). Finance costs declined 60% to 3.24 billion rupees
($0.054 billion) from a year earlier.
The company also produces natural gas from a field off India
s east coast with
partners BP, Europe
s second-biggest oil
company, and Canadas Niko Resources. The federal
government deferred a plan to raise gas tariffs by at least
three months to Oct. 1 as it evaluates a formula that prices
the fuel at a weighted average of prices in the U.S. and Europe
and import costs in Japan
Output from the KG-D6 block fell 15% to 42 billion cubic feet
in the quarter ended June from a year earlier, Reliance said.
Oil production from the block dropped 1% to 530,000 bbl and
condensate output increased 48% to 90,000 bbl in the quarter.
The company also operates stores that sell fruits and clothes
and plans to start a fourth-generation broadband service.
Reliance will start the $12 billion telecommunications
network next year to meet voice and data demand in the
worlds second-most populous nation, Ambani told
shareholders on June 18.