Reliance Profit Beats Estimates as Refining Margins Widen

Reliance Industries Ltd., India’s biggest company by market value, reported a better-than-estimated quarterly profit after earnings increased from turning crude oil into gasoline and diesel.

Third-quarter net income rose 24 percent to 55 billion rupees ($1 billion), or 17 rupees a share, in the three months ended Dec. 31 from 44.4 billion rupees, or 13.60 rupees, a year earlier, Mumbai-based Reliance said yesterday in a filing. Profit beat the 50.1 billion rupee median estimate of 25 analysts in a Bloomberg survey. Sales rose 10 percent to 938.9 billion rupees.

Billionaire Chairman Mukesh Ambani, 55, is shifting focus back to processing crude as Reliance’s output from India’s largest natural gas block continues to wane. Economic recovery from the U.S. to China is expected to lift global demand for fuels that Reliance produces in the world’s biggest refining complex in Gujarat state and sells overseas.

“Refining has been above estimates and its margins will be steady over the next year or so,” said Neelabh Sharma, a Mumbai-based analyst with BOB Capital Markets Ltd., a unit of state-run Bank of Baroda. “Earnings will get a new boost once new projects start in about a year.”

Reliance’s global depository receipts in London climbed 4.1 percent to $34.11, the highest price since Feb. 22. The shares have increased 7.2 percent this year, adding to last year’s 21 percent surge, the most since 2009. The stock rose 1.2 percent to 900.20 rupees in Mumbai trading yesterday, compared with a 0.4 percent gain in the key Sensitive Index. The earnings were announced after the market closed.

Heavier Crude

Reliance operates two refineries at Jamnagar in the western state that can together process 1.24 million barrels of crude every day. The plants can turn heavier grades of oil, which are typically cheaper, into high-value fuels.

The company earned $9.6 for every barrel of crude it processed in the quarter, compared with $6.8 a year earlier and $9.5 a barrel in the previous three months. Profit from turning Dubai crude into diesel in Singapore, an Asian benchmark, averaged $18.77 a barrel in the quarter, compared with $18.22 a year earlier, according to data from PVM Oil Associates Ltd., a London-based crude and refined-products broker.

Brent crude, a benchmark oil price used by much of the world, averaged $110.13 a barrel in the three months ended Dec. 31, compared with $109.02 a year earlier.

Oil yesterday headed for the longest weekly rising streak in 14 months in New York after economic growth accelerated in China, the world’s second-biggest crude consumer. China’s gross domestic product rose 7.9 percent in the fourth quarter from a year earlier, compared with 7.4 percent in the previous period, the National Bureau of Statistics said yesterday in Beijing.

Petrochemical Spending

Reliance is spending $8 billion to boost petrochemical capacity and $4 billion on a plant to make combustible gas to power its refineries, which will help it widen refining margins, according to its website. The company had cash and equivalents of 809.62 billion rupees and 722.66 billion rupees of debt outstanding as of Dec. 31, according to the statement.

Gas production from the KG-D6 block in the Bay of Bengal declined 37 percent to 275 billion cubic feet in the nine months ended Dec. 31 from a year earlier, Reliance said yesterday. The drop was because of reservoir complexity and a natural decline in output, it said.

The company last month began drilling its first well in the KG-D6 block in more than a year, seeking to start output from new areas within the KG-D6 block. The newer fields may produce as much as 10 million cubic meters of gas a day starting 2015, according to a person familiar with the matter.

Gas Rates

Reliance’s plans to raise production may get a boost if the government accepts the recommendations of a panel led by Chakravarthy Rangarajan, chief of the prime minister’s Economic Advisory Council. The panel wants gas rates in India to be benchmarked to global rates, which will raise prices to about $8 per million British thermal units.

Reliance currently sells the fuel from the KG-D6 block for $4.2 per million Btu, a price which comes up for revision in April 2014.

The explorer, which also operates chemical plants and retail stores, sold stakes in KG-D6 and 20 other blocks to BP Plc, Europe’s second-biggest oil producer by market value, as Ambani sought the London-based company’s technology to drill and produce gas from the deepwater area.

(Updates with global depository receipts in fourth paragraph.)
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