Reliance Industries Ltd. (RIL)’s shares increased the most in more than two weeks after first-quarter profit beat analysts’ estimates at the operator of the world’s largest oil refining complex.
The stock rose 2.1 percent to 997.65 rupees, the most since July 4, in Mumbai trading today. The shares have gained 11 percent this year, lagging the S&P BSE Sensex (SENSEX)’s 21 percent increase. They were the second-worst performers on the key index in the past month.
Net income, excluding that of units, rose 5.5 percent to 56.5 billion rupees ($938 million) in the quarter ended June from a year earlier, the Mumbai-based company said July 19. That exceeded the 53.7 billion-rupee median estimate of 25 analysts surveyed by Bloomberg. An increase in natural gas prices will be the next trigger for the company’s shares along with the start of a $12 billion telecommunications business, according to Asian Market Securities Pvt.
“The market is looking to these two big events for Reliance,” Kamlesh Kotak, Mumbai-based head of research at Asian Markets Securities, said by phone today. “Diversification and expanding capacity at its main businesses, that’s the way Reliance is going forward.”
Reliance is spending 1.8 trillion rupees to expand its petrochemicals, refining and natural gas businesses and is starting a new telecommunications service next year. It plans to spend 350 billion rupees in the year ending March as part of a 1.8 trillion rupee expansion plan, Chief Financial Officer Alok Agarwal told reporters in Mumbai on July 19.
Lower interest cost and improved refining margin in the quarter helped boost profit, Agarwal said. The company’s finance costs declined 60 percent to 3.24 billion rupees from a year earlier, according to the statement.
Reliance earned $8.7 for every barrel of crude it turned into fuels in the quarter, compared with $8.4 a barrel a year earlier and $9.3 a barrel in the three months ended March, the company said.
The company operates two crude oil refineries with a combined capacity of 1.24 million barrels a day located next to each other at Jamnagar in the western state of Gujarat. They have the ability to process cheaper, lower grades of crude into high-value products for use in Europe and the U.S.
Reliance will have to deal with a smaller refining margin as demand for fuels in Asia slows. Earnings from making diesel in Singapore, an Asian benchmark, this year will be the lowest since 2011, according to Wood Mackenzie Ltd.
Profit from making diesel in Singapore averaged $16.15 a barrel in the quarter, compared with $16.52 a year earlier and $17.86 a barrel in the preceding quarter, according to data from PVM Oil Associates Ltd. in London. On July 9, it fell to the lowest since December 2010, according to the data.
The company also produces natural gas from a field off India’s east coast with partners BP Plc (BP/), Europe’s second-biggest oil company, and Canada’s Niko Resources Ltd. (NKO) The federal government deferred a plan to raise gas tariffs by at least three months to Oct. 1 as it evaluates a formula that prices the fuel at a weighted average of prices in the U.S. and Europe and import costs in Japan and India.
Output from the KG-D6 block fell 15 percent to 42 billion cubic feet in the quarter ended June from a year earlier, Reliance said. Oil production from the block dropped 1 percent to 530,000 barrels and condensate output increased 48 percent to 90,000 barrels in the quarter.
Reliance, which also operates stores that sell fruits and clothes, plans to start the $12 billion telecommunications network next year to meet voice and data demand in the world’s second-most populous nation, Ambani told shareholders on June 18.
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