Reliance Industries 3Q Net Up 28%; Lags Estimates

MUMBAI (Dow Jones Newswires), Jan. 21, 2011

Reliance posted a 28% rise in third-quarter net profit, as strong performances in its refining and petrochemicals businesses helped offset lower production of natural gas and a month-long refinery shutdown.

India's largest listed company by market value had a net profit of INR51.36 billion ($1.13 billion) for the three months to Dec. 31, compared with INR40.08 billion a year earlier.

Sales rose to INR597.89 billion from INR568.56 billion.

Profit, however, lagged the INR53 billion average of estimates in a Dow Jones Newswires poll of 10 analysts.

The company, controlled by billionaire Mukesh Ambani, improved its gross margin from refining a barrel of crude in the October-December quarter to $9 a barrel from $5.9 a barrel a year earlier.

Analysts had, on average, expected Reliance Industries--India's largest private-sector refiner by capacity--to post a gross refining margin of $9 a barrel. Gross refining margin was $7.9 a barrel in the second quarter.

Profit was below expectations because the company's gross refining margins were at the lower end of estimates, with some analysts expecting GRMs of up to $9.5 a barrel, Jagannadham Thunuguntla, head of research at SMC Global Securities, said after the earnings.

"Reliance had another record quarter as both refining and petrochemical margins continued to improve and for certain products recorded historic levels," Mukesh Ambani, chairman and managing director, said in a statement.

Reliance Industries operates the world's single largest refinery complex at Jamnagar in the western state of Gujarat, with a nameplate crude processing capacity of 1.24 million barrels a day, which is about one-third of India's refining capacity.

In the third quarter, the company refined 16.1 million tonnes of crude and the refinery operated at an average utilization rate of about 104%.

"The utilization rate was lower [from the year earlier] due to a planned shutdown of one train of the crude distillation unit for 22 days in the third quarter," Reliance Industries said.

Revenue from the refining business rose to INR525.24 billion from INR480.00 billion. Petrochemicals revenue during the quarter also rose to INR159.62 billion from INR147 billion.

"On the back of strong domestic demand growth, lack of adequate new capacities globally and historically high cotton prices, the polyester chain witnessed robust margin environment," the company said.

Reliance Industries had earlier said it would invest in expanding its petrochemical facilities at Jamnagar to boost earnings from growing demand for petrochemical products.

"Refining and petrochemical environments are experiencing their best in the last three years, driven by a pick-up in global demand for these sectors," Alok Deshpande, analyst at Elara Securities said in a recent note.

Oil, Gas Production & Telecom

Reliance Industries operates the deep water D6 block in the Krishna Godavari basin off India's eastern coast. The KG-D6 block is considered the country's richest gas find so far and helped reduce dependence on imports of natural gas since production commenced in 2008.

For the nine months ended Dec. 31, production from KG-D6 was 6.43 million barrels of crude oil and 559 billion cubic feet of natural gas. The company didn't provide production figures for KG-D6 for the October-December quarter.

Gas production from the D6 block averaged 58 MMSCMD in the July-September period, but fell to 54 MMSCMD-55 MMSCMD during October-November and to 52 MMSCMD-53 MMSCMD in December, oil ministry officials previously told Dow Jones Newswires.

Natural gas production from the Panna-Mukta fields off India's west coast fell 32% to 34 billion cubic feet during April-December 2010, and crude oil production fell 38% to 6.21 million barrels. Gas production from the Tapti fields in west India also fell 10% to 74 BCF.

Separately, Reliance said it sees "the broadband opportunity as a new frontier" in which it can "take a leadership position" by providing a 4G network and services.

In June last year, Reliance paid about INR48.00 billion to buy 95% of Infotel Broadband, which had won a government auction of radio waves to offer wireless broadband services in the entire country, marking the energy major's foray into telecommunications.

Ahead of the earnings, shares of Reliance closed 1.73% higher at INR986.50 on the Bombay Stock Exchange, outperforming a 0.2% decline in the main index. The company's shares have declined 7.1% since Jan. 1 in line with the broader market, which fell 8.9%.

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