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Reliance Industries 3Q Profit Beats Forecast

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NEW DELHI - Reliance Industries Ltd. Friday posted a better-than-expected 24% increase in net profit for the fiscal-third quarter as an improved refining margin offset lower earnings in its petrochemicals and oil and gas production businesses.

Mumbai-based Reliance said its profit for the October-December quarter rose to 55.02 billion rupees ($1.02 billion) from 44.40 billion rupees a year earlier. This is the first time in five quarters that the company is posting a higher profit.

Net sales increased 10% to 938.86 billion rupees.

The market was expecting Reliance, India's largest-listed company by market value, to post a net profit of 50.14 billion rupees on sales of 924.80 billion rupees, according to the average of estimates in a Dow Jones Newswires poll of six analysts.

Reliance has relied on its robust and well-established refineries businesses to push its profits higher this quarter, at a time when it is struggling to generate sufficient earnings off its prized natural gas find off India's east coast.

While it is not clear how quickly the company would ramp up its oil and gas production, it is pumping massive investments in several other businesses: refineries, petrochemicals, retailing and telecommunications, to significantly increase the scope and size of its operations in the longer term.

The profit growth in the past quarter was fueled by an improvement in its refining margin--or the profit on converting crude oil into products. It earned a gross refining margin of $9.60 a barrel in the past quarter compared with $6.80 a year earlier.

Reliance said the margin expanded due to strong gains on naphtha, its crude-sourcing abilities and a flexible product mix.

The refining division's earning before interest and taxes more than doubled to 36.15 billion rupees in the October-December period, while sales rose 13% to 866.41 billion rupees.

Reliance accounts for about a third of India's refining capacity. Its refining complex at Jamnagar in western India is the world's largest single refining facility, with a crude processing capacity of 1.24 million barrels a day.

Gains in the refining business helped Reliance offset declining revenue in its oil and gas production business. Earnings before interest and taxes in this business fell 54% to 5.90 billion rupees, while revenue dropped 32% to 19.21 billion rupees.

Reliance's natural gas field off the east coast is the country's largest. The cumulative production from this block, called KG-D6, was 2.3 million barrels of crude oil and 275 billion cubic feet of natural gas in the first nine months of the fiscal year, down 40% and 37%, respectively, from a year earlier.

The company, which didn't provide the KG-D6 production data for the past quarter, said geological complexities and some maintenance shutdowns were responsible for the fall in output.

At its petrochemicals business, revenue grew 11.5% to 220.53 billion rupees, while earnings before interest and taxes fell 10% to 19.37 billion rupees.

The company didn't give financial details about its retail and telecom businesses for the quarter.

Reliance said it had cash and cash equivalents of $14.7 billion as of Dec. 31, while it had outstanding debt of $13.1 billion.

The company said its capital expenditure in the first nine months of the financial year totaled $2.4 billion.

Copyright (c) 2012 Dow Jones & Company, Inc.

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