Reliance Industries Ltd., operator of the world’s biggest oil refining complex, reported profit slumped for the third straight quarter on declining natural gas output in India and reduced earnings from fuel sales.
Net income fell 21 percent to 44.7 billion rupees ($809 million) in the three months ended June 30, according to a stock exchange filing yesterday. The median estimate of 28 analysts compiled by Bloomberg was 43.7 billion rupees. Net sales rose 13 percent to 918.8 billion rupees.
Declining earnings have cost Mumbai-based Reliance its position as India’s biggest company by market value. Lower demand for fuels following the European debt crisis and global economic slowdown and reduced output at Reliance’s largest natural gas deposit threaten billionaire Chairman Mukesh Ambani’s target of doubling operating profit within five years.
“Operations are still weak and the outlook for gas output and refining continue to be difficult,” said Juergen Maier, a fund manager in Vienna at Raiffeisen Capital Management, which manages about $1.1 billion in emerging-market assets, including Indian stocks. “Globally economies are slowing down, which makes it difficult to improve the margin for refining.”
Reliance shares fell 0.7 percent to 722.65 rupees at the close yesterday in Mumbai, giving the company a market value of about $43 billion, the third-highest among India’s listed companies. The stock has gained 4.3 percent this year, lagging behind the 11 percent increase in the benchmark Sensitive Index.
Daiwa Securities Co. and Antique Stock Broking Ltd. reduced the stock to hold last month. Reliance has eight sell ratings by analysts, 18 holds and 26 buys, according to data compiled by Bloomberg. The number of buy recommendations has dropped to 50 percent of the total, the lowest since December 2010.
Europe’s debt crisis and a slowdown in China’s economy have cut fuel demand, narrowing refining margins for companies including Reliance and China Petroleum & Chemical Corp. China, the world’s second-biggest oil consumer, has cut local fuel prices three times since May, reducing profit for refiners including PetroChina Co.
Reliance made a profit of $7.6 on every barrel of crude it processed into fuels in the quarter, compared with $10.3 a barrel a year earlier, the company said in a statement.
Profit from turning Dubai crude into fuels in Singapore, a regional benchmark, averaged $3.37 a barrel in the quarter, compared with $5.16 a barrel a year earlier and $4.61 in the preceding quarter, according to data compiled by Bloomberg. The refining margin turned to a loss of 19 cents on June 29, the lowest since Nov. 15, 2010.
Reliance’s two adjacent refining plants at Jamnagar in the western state of Gujarat can turn a combined 1.24 million barrels of crude into fuels daily. The facilities are capable of turning cheap, low-grade crude into high-value fuels. A narrowing difference between lighter crude oil, which is typically expensive, and heavier varieties that are cheaper, hurts Reliance’s earnings.
The average difference between light Brent crude oil and heavier Dubai oil was $2.53 a barrel in the quarter ended June 30, compared with $6.06 a year earlier, according to PVM Oil Associates Ltd., a London-based crude and refined-products broker. The spread fell to $1.37 a barrel on June 12, the lowest since March 15.
Reliance is spending $8 billion to boost petrochemical capacity and $4 billion on a plant to make a combustible gas to power its refineries, according to an April 20 presentation on its website. The gas plant will widen its refining margin by as much as 40 percent in three years by cutting the use of more expensive imported gas, Ambani told shareholders June 7.
Reliance had cash and equivalents of 707.32 billion rupees as of June 30, the company said in the statement. Debt stood at 732.13 billion rupees.
Reliance is also struggling to raise output from its gas field, off the east coast in the Bay of Bengal. Niko Resources Ltd., which owns a 10 percent stake in the KG-D6 block, cut the estimate for its share of proved and probable gas reserves to 193 billion cubic feet as of March 31, according to a June 20 statement, which didn’t provide year-earlier figures.
Reliance had 104 billion cubic meters, or 3.7 trillion cubic feet, of proved gas reserves at all its assets as of March 31, according to its annual report. The explorer reduced its estimate of reserves by 6.7 percent, or 12.4 billion cubic meters, according to the report.
Gas output from KG-D6 fell 33.1 percent to 104.4 billion cubic feet in the quarter because of technical difficulties in the reservoir, Reliance said.
Reliance plans to invest 1 trillion rupees in the company’s Indian assets, including petrochemicals and telecommunications, in the next five years to double operating profit, Ambani told shareholders on June 7.