Reliance Posts Highest Quarterly Profit Since 2007 on Refining Earnings: Bloomberg

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Reliance Posts Highest Quarterly Profit Since 2007 on Refining Earnings

By Rakteem Katakey - Jan 21, 2011

Reliance Industries Ltd., India’s biggest company by market value, posted its highest quarterly profit in three years after earnings from oil refining helped make up for a drop in natural gas production.

Net income in the three months ended Dec. 31 rose 28 percent to 51.4 billion rupees ($1.1 billion), or 15.70 rupees a share, from 40.1 billion rupees, or 12.30 rupees, a year earlier, the Mumbai-based energy explorer and refiner said in a statement to the Bombay Stock Exchange today. Profit was the highest since the quarter ended December 2007. The average estimated by 17 analysts in a Bloomberg survey was 52.1 billion rupees.

Refining margins expanded as the global economic recovery spurred fuel demand, outweighing a 12 percent fall in output from India’s largest gas field. Higher profit at Reliance gives billionaire Chairman Mukesh Ambani funds to invest in power generation, telecommunications and U.S. shale gas assets.

“Refining has been picking up and that helps Reliance offset some of the decline on gas production,” Vinay Nair, a Mumbai-based analyst with Angel Broking Ltd., said before the earnings. “There is still potential for growth in their core businesses. Many gas discoveries have been made and there are many unexplored fields with them.”

Reliance shares rose 1.8 percent to 986.80 rupees at close in Mumbai, ending a six-day losing streak and giving the company a market value of $71 billion. The stock declined 3 percent last year compared with a 17 percent gain in the benchmark Sensitive Index.

Refining Margins

Reliance’s two adjacent refineries at Jamnagar in the state of Gujarat produce gasoline and diesel that are exported to the U.S., Europe andAsia. The plants can process a combined 1.24 million barrels a day, equivalent to 1.6 percent of global capacity, according to Reliance’s website.

The company’s gross refining margins were $9 a barrel compared with $5.9 a year earlier, Reliance said in an e-mailed statement. Pretax profit from refining rose 77 percent to 24.4 billion rupees in the quarter, according to the statement.

Global refining margins, or the profit from turning crude into fuels, climbed to $4.64 a barrel in the three months ended Dec. 31 from $4.53 a barrel in the quarter ended Sept. 30 and $1.49 a barrel a year ago, according to BP Plc data.

Essar Oil Ltd., the operator of India’s second-largest non- state, crude-oil refinery, posted a profit in the third quarter and earned $7.2 on every barrel of crude turned into fuels compared with $1.56 a year earlier.

‘Earnings Surprise’

Reliance’s cyclical businesses including refining and chemicals are “turning around” and will likely drive an “earnings surprise” over the medium term, Goldman Sachs Group Inc. analysts including Nilesh Banerjee said in a report Jan. 17. The U.S. bank added Reliance to its Asia-Pacific “conviction buy” list and increased the share price estimate to 1,250 rupees from 1,200 rupees.

Reliance buys heavy grades of crude oil, which are cheaper than lighter varieties, and turns them into high quality products including gasoline and diesel at its refineries on India’s west coast. A wider difference between heavy and light grades of crude oil helps Reliance increase its refining margins.

The difference between light Brent crude oil and heavier Dubai oil increased to $4.52 a barrel today from $0.64 a year earlier, according to data compiled by Bloomberg.

Crude oil in New York climbed 12 percent to an average of $85.16 a barrel in the three months ended Dec. 31 from a year earlier, according to Bloomberg data. Prices rose 15 percent in 2010 as demand increased from China and India.

Gas Output

The higher refining margins helped to cushion the impact of falling production at India’s biggest gas field, operated by Reliance. Output at the field off the east coast declined by 12 percent to about 53 million cubic meters a day because wells produced less gas than expected, a person with knowledge of the matter said in November.

Gas production from the KG-D6 block may rise again to 60 million cubic meters a day by April, S.K. Srivastava, head of the Directorate General of Hydrocarbons, India’s oil and gas regulator, said Jan. 11. Output may climb to 80 million cubic meters a day in the year ending March 2013, he said.