Reliance Net Beats Estimates With Fastest Pace in 9 Quarters

  • Gross refining margins at $10.6/bbl, climb most in 7 years
  • Margins boosted by higher utilization, strong fuel demand

Reliance Industries Ltd.’s profit rose at the fastest pace in nine quarters as gross refining margins at the operator of the world’s biggest oil-refinery complex widened, boosted by higher utilization and strong demand.

Net income, excluding units, increased 14 percent to 65.61 billion rupees ($1 billion) in the second quarter through September from a year earlier, the Mumbai-based company said Friday. That beat the 58.4 billion-rupee average of 12 analyst estimates compiled by Bloomberg.

Billionaire Mukesh Ambani-controlled Reliance is benefiting from lower crude prices in the quarter, with Brent averaging about half of what it was a year ago. The refiner earned $10.6 for every barrel of crude it turned into fuels in the period, the highest in seven years. Gross refining margin was $8.3 a barrel a year earlier and $10.4 in the preceding three months.

“Refining margin was the biggest surprise,” said Dhaval Joshi of Emkay Global Financial Services Ltd. “We could see positive momentum continuing in the Reliance stock if it manages to hold on to these margins.”

The shares rose 0.9 percent to 912.15 rupees in Mumbai. They have gained 2.4 percent this year, compared with a 1 percent decline in the benchmark BSE S&P Sensex. The earnings were announced after the close of trading.

‘Fuel Demand’

“Refining business performance was notable, as it benefited from a combination of high utilization levels, advantageous crude market opportunities and strong global fuels demand,” Ambani said in a statement.

Reliance is hoping to cut energy costs at its Jamnagar refinery complex in the western state of Gujarat as well as petrochemical units by using synthesis gas and imported ethane as feedstock. Lower costs will help the company boost margins and face competition from China, which exported a record volume of fuel in August. 

The adjoining refineries at Jamnagar have a combined capacity of 1.24 million barrels a day and can process cheaper, lower grades of crude into high-value products. Brent oil, the global benchmark, averaged about $51 a barrel in the quarter.

Sales fell 37 percent to 608.17 billion rupees, the fifth consecutive quarter of decline.

The fall in the price of crude wasn’t all good news. The company took an impairment charge of $637 million on its U.S. shale assets after prices slumped, V. Srikanth, joint chief financial officer told reporters in Mumbai.

LYF Smartphones

The company will start a fourth-generation telecommunications network this fiscal year and sell smartphones under the LYF brand through its own stores.

The company operates retail stores that sell fruits and clothes and is planning to start an e-commerce business later this year, which will focus on fashion and lifestyle products, Reliance Retail Head of Strategy Gaurav Jain told reporters in Mumbai. 

Revenue at the retail business grew 22 percent to 50.91 billion rupees in the quarter. The unit, which started in 2006, operated 2,857 stores across 250 cities in India, according to the statement.

Reliance had 1.73 trillion rupees of debt and 857.20 billion rupees of cash and equivalents, invested in mutual funds, government bonds and bank deposits, as of Sept. 30, the company said.

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