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Reliance Industries 4Q Profit Beat Street Estimates

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NEW DELHI - Reliance Industries Ltd. Tuesday posted its biggest quarterly profit in 18 months as it exceeded market estimates by reporting a 32% increase in fiscal fourth quarter net profit, helped by higher refining margin.

Net profit for the January-March quarter rose to 55.89 billion rupees ($1.03 billion) from 42.36 billion rupees a year earlier.

Sales, however, fell 1.15% to 841.98 billion rupees from 851.82 billion rupees on declining natural gas production at its block off India's east coast.

Eighteen analysts polled by Dow Jones Newswires on average expected the company to post a net profit of 54.26 billion rupees on sales of 916.27 billion rupees.

"The growth in earnings was largely driven by strong and improved refining margins during the year," Reliance Industries Chairman Mukesh D. Ambani said in a statement.

Earnings from converting a barrel of crude into products during the past quarter rose 33% from a year earlier to $10.10 a barrel from $7.60 a barrel, while its earnings margin before interest and tax in the refining business rose to 4.5% from 2.2%. Reliance has a nameplate refining capacity of 1.24 million barrels a day.

The results show Reliance's dependence on its robust and well-established refineries businesses to push its profits higher, at a time when it is struggling to generate sufficient earnings off its prized natural gas find off India's east coast. The revenue from the block was down 39% during the quarter.

Reliance, which has cash and equivalents of 829.75 billion rupees, is investing in telecom, retail, homeland security, financial services, hotels and the media sector as it seeks to raise sources of revenue from non-core business areas and to lower dependence on its exposure to India's heavily regulated oil and gas sector, at a time when it has also purchased shale gas acreage in the U.S.

"There were no major surprises in the numbers," said Bhavesh Chauhan, a senior analyst at Mumbai-based Angel Broking Ltd. "Declining gas production at its east coast block and a likely pressure on its refining margin going forward due to over capacity in Asia and elsewhere are key concerns." The brokerage house has a neutral rating on the stock.

Ahead of the results, Reliance shares rose 1.38% at 804.50 in a Mumbai market that finished 2.11% up.

Reliance is also facing challenges in its exploration and production business where it is struggling to raise output at the D6 block in the Krishna-Godavari basin, off India's east coast.

Gas output at D6 fell about 39% to 336 billion cubic feet during the last financial year from 551.31 billion cubic feet. It didn't give production numbers for the quarter.

In 2011, Reliance sold a 30% stake in its 21 oil and gas blocks, including D6, to BP PLC (BP.LN) for $7.2 billion, as it sought to get technology for deep-sea exploration.

Production at D6 has been hurt due to reservoir complexities and water ingress in the fields. BP PLC and Reliance Industries Ltd. plan to jointly invest more than $5 billion in the next three-to-five years to boost gas output in a block off India's east coast, the companies earlier said.

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

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