Reliance Profit Grows at Slowest in 4 Quarters on Refining

Reliance Industries Ltd., owner of the world’s biggest refinery complex, reported the slowest profit growth in four quarters after refining margins declined.

Net income rose 1.5 percent to 54.9 billion rupees ($894 million), or 17 rupees a share, in the three months ended Sept. 30, from 54.1 billion rupees, or 16.70 rupees, a year earlier, according to a stock exchange filing yesterday. That beat the 54.2 billion-rupee median of 25 analysts’ estimates compiled by Bloomberg. Sales increased 15 percent to 1.04 trillion rupees.

The slowing pace of growth in earnings may impede billionaire Chairman Mukesh Ambani’s plan to spend 1.5 trillion rupees over the next three years to expand his energy-to-telecommunications empire. Gas production at Reliance’s biggest field has declined for three years in a row and the Mumbai-based company is struggling to bring new deposits in India to production even as profits from refining crude oil have shrunk.

“This contraction in refining margins is likely to continue in the near term as economies stay weak,” said D.K. Aggarwal, New Delhi-based chairman of SMC Investments & Advisors Ltd., which manages $100 million of Indian shares. “It will take at least a couple of quarters before we can see some reversal in the earnings.”

The refiner’s shares declined 0.3 percent to 867.80 rupees at the close in Mumbai, the first drop in three days. They’ve increased 3.4 percent this year, compared with a 5.8 percent gain in the benchmark S&P BSE Sensex.

Refining Earnings

The company earned $7.70 for every barrel of crude it processed in the quarter, compared with $9.50 a barrel a year earlier and $8.40 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 $17.76 a barrel in the quarter compared with $18.66 a year earlier, according to data compiled by Bloomberg.

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.

Brent crude, a benchmark oil price used by much of the world, averaged $109.65 a barrel in the three months ended Sept. 30, compared with $109.42 a year earlier.

Cash Reserves

The company had 905.4 billion rupees of cash and equivalents deposited in banks and mutual funds and invested in government securities as of Sept. 30, according to the company. Total debt was at 839.8 billion rupees.

Gas production from the company’s KG-D6 block in the Bay of Bengal dropped 52 percent to 94.6 billion cubic feet in the six months ended Sept. 30, according to the company. Oil output fell 41 percent to 1 million barrels and condensate declined 50 percent to 130,000 barrels.

The company may also be compelled by the oil ministry to continue selling KG-D6 gas at the current price of $4.2 per million British thermal units until a production shortfall is met or the government is satisfied output from the area wasn’t reduced intentionally, according to a draft proposal seen by Bloomberg News and confirmed by two government officials with direct knowledge of the matter.

“Clarity on pricing is important for any responsible decision making” on future investments, Reliance Chief Financial Officer Alok Agarwal said at an earnings press conference in Mumbai.

India’s Cabinet in June approved a new formula for calculating gas prices starting April 1, 2014, almost doubling rates for the locally-produced fuel. The move prompted some political parties to demand a review of the decision.

Reliance also operates stores that sell fruits and clothes and plans to start a fourth-generation broadband service.

Before it's here, it's on the Bloomberg Terminal.