Reliance Industries Ltd. (RIL), owner of the world’s biggest oil refining complex, headed for its biggest decline in five weeks after it reported a 7.4 percent drop in third-quarter operating profit.
The shares fell as much as 1.6 percent to 870.55 rupees, the sharpest drop since Dec. 16, and traded 1.4 percent lower at 872.75 rupees as of 9:58 a.m. in Mumbai. Operating profit declined to 54.8 billion rupees ($889 million) in the quarter ended Dec. 31 from a year earlier, the company said Jan. 17.
Reliance’s revenue from its 887.1 billion rupees of cash and equivalents deposited in banks and invested in mutual funds resulted in an unexpected increase in net income in the period. Boosting earnings is key for billionaire Chairman Mukesh Ambani’s plans to spend 1.5 trillion rupees over the next three years to expand his energy-to-telecommunications empire.
“There are no major reasons for an increase in share prices in the next few months as operations continue to be weak,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd., who has an accumulate rating on the stock “Gas output is lagging. A slow global recovery will keep pressure on refining margins and petrochemical prices in the next couple of quarters.”
Net income rose to 55.1 billion rupees, or 17.10 rupees a share, in the quarter from 55 billion rupees, or 17 rupees a share, a year earlier. That beat the 53.1 billion-rupee median of 26 analyst estimates compiled by Bloomberg.
Sales rose 11 percent to 1.04 trillion rupees from a year earlier, according to Reliance’s earnings statement. Income other than from core operations rose 32 percent to 23.05 billion rupees, while finance costs fell 1.7 percent to 7.92 billion rupees.
Reliance, which produces natural gas from fields off India’s east coast, plans to increase output from the area by 2018 when new fields start, Kamlesh Kotak, the Mumbai-based head of research at Asian Markets Securities Pvt., said after the company briefed analysts on Jan. 17. Output from the KG-D6 block has dropped for the past three years as the company says the deposit is more difficult to produce from than previously estimated.
An increase in gas prices from April 1 will benefit the company and boost exploration, according to a Jan. 13 Sanford C. Bernstein report. The company may raise total offshore output to 50 million cubic meters a day in the year ending March 2018 from 20 million currently, the report said.
India’s Cabinet in June approved a new formula for calculating gas prices, almost doubling rates for locally produced fuel. Gas from the KG-D6 block is currently sold at $4.2 per million British thermal units.
“The company has said significant increase in gas production will happen only in about four years from now,” Kotak said. “That is much later than we had thought.”
Reliance operates two refineries at Jamnagar in the western state of Gujarat that can process a combined 1.24 million barrels of crude daily. The plants are capable of turning heavier oil grades, which are typically cheaper, into high-value fuels.
The company earned $7.60 for every barrel of crude it processed in the quarter, compared with $9.60 a barrel a year earlier and $7.70 a barrel in the preceding three months, it said in an e-mailed statement. Profit from turning Dubai crude into diesel in Singapore, an Asian benchmark, averaged $17.47 a barrel in the quarter, compared with $18.77 a year earlier, according to data from PVM Oil Associates Ltd. in London.
Reliance expects refining margins to recover this quarter, Chief Financial Officer Alok Agarwal told reporters in Mumbai on Jan. 17.
Reliance uses products from its refineries to produce petrochemicals that are used to make plastics. It started a polyester yarn factory, part of its petrochemicals expansion plan, at Silvassa, about 170 kilometers (106 miles) north of Mumbai, according to the Jan. 17 statement.
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