Reliance Profit Unexpectedly Rises on Earnings From Investments

Reliance Industries Ltd., owner of the world’s biggest oil refining complex, reported an unexpected increase in profit as earnings from investments and lower finance costs compensated for a drop in operating income.

Net income rose to 55.1 billion rupees ($894 million), or 17.10 rupees a share, in the three months ended Dec. 31 from 55 billion rupees, or 17 rupees a share, a year earlier, according to a regulatory filing yesterday. That beat the 53.1 billion-rupee median of 26 analyst estimates compiled by Bloomberg. Operating income dropped 7.4 percent to 54.8 billion rupees.

Boosting earnings is key for billionaire Chairman Mukesh Ambani’s plans to spend 1.5 trillion rupees over the next three years to expand his energy-to-telecommunications empire. Reliance, which produces natural gas from a field off India’s east coast, will be able to increase its pretax profit by as much as 7 percent when the government almost doubles prices of the fuel in April, Standard & Poor’s said Jan. 14.

“Income from their cash will play a vital role in profitability till the time earnings from higher gas prices start kicking in,” said Kamlesh Kotak, Mumbai-based head of research at Asian Markets Securities Pvt. “Once the higher gas price comes into effect, the performance will improve.”

Third-quarter sales rose 11 percent to 1.04 trillion rupees from a year earlier, according to the statement. Income other than from core operations rose 32 percent to 23.05 billion rupees, while finance costs fell 1.7 percent to 7.92 billion rupees.

Cash Investments

Reliance had 887.1 billion rupees of cash and equivalents as of Dec. 31, deposited in banks, mutual funds and government securities. The company had total debt of 813.3 billion rupees in the period.

Reliance produces natural gas from a block off India’s east coast. An increase in prices from April 1 will benefit the company and boost exploration, according to a Jan. 13 Sanford C. Bernstein report. The company may raise total offshore output to 50 million cubic meters a day in the year ending March 2018 from 20 million currently, the report said.

The company and its partners BP Plc and Canada’s Niko Resources Ltd. produced 135 billion cubic meters of gas from the KG-D6 block in the nine months ended Dec. 31, 51 percent lower than the year earlier period, according to yesterday’s statement. Output at the block has dropped for three years in a row.

Gas Formula

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. Gas from the KG-D6 block is currently sold at $4.2 per million British thermal units.

The new price, which will be revised once a quarter, will be a weighted average of rates in the U.S., U.K. and imports costs for Japan and India.

The refiner’s shares declined 0.2 percent to 884.75 rupees at the close in Mumbai yesterday. They’ve dropped 0.6 percent in the past year, compared with a 5.5 percent gain in the benchmark S&P BSE Sensex.

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.

The company earned $7.60 for every barrel of crude it processed in the quarter, compared with $9.60 a barrel a year earlier and $7.70 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 $17.47 a barrel in the quarter, compared with $18.77 a year earlier, according to data from PVM Oil Associates Ltd. in London.

Refining Margin

Reliance expects refining margin to recover this quarter, Chief Financial Officer Alok Agarwal told reporters in Mumbai yesterday.

Brent crude, a benchmark oil price used by much of the world, averaged $109.35 a barrel in the three months ended Dec. 31, compared with $110.13 a year earlier.

Reliance also operates stores that sell fruits and clothes and plans to start a fourth-generation broadband service. Unit Reliance Jio applied for 900 megahertz and 1,800 megahertz second-generation mobile phone spectrum, the ET Now news network reported Jan. 15. The company will offer voice services, Agarwal said yesterday.

Reliance uses products from its refineries to produce petrochemicals that are used to make plastics. It started a polyester yarn factory, part of its petrochemicals expansion plan, at Silvassa, about 170 kilometers (106 miles) north of Mumbai, according to yesterday’s statement.

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