Reliance Falls as Project Delays Outweigh Profit at 8-Year High

  • Company reported highest quarterly profit since Dec. 2007
  • Reliance facing 1-2 quarter delay in expansion projects

Reliance Industries Ltd., which reported the highest quarterly profit in more than eight years on Friday, fell to the lowest in more than a month on concerns over cost-overruns and delays in projects.

The shares declined as much as 2.6 percent to 1,012.30 rupees, the lowest since mid-March, and traded at 1,015 rupees as of 2:31 p.m. in Mumbai. The stock was the biggest loser on the S&P BSE Sensex on Monday.

Completion of a petcoke-gasification project, which seeks to reduce energy costs at its refineries, is delayed by half a year, brokerages including Credit Suisse Securities Research & Analytics, J.P. Morgan India Pvt. and Citi Research said in separate notes to clients. All of them cited comments made by the company’s management at a conference call with analysts after the earnings on Friday.

“The petcoke-gasification project was to start coming in from March,” said Nitin Tiwari, an analyst at Antique Stock Broking Ltd. “Given that instead of March this has been pushed to the second or third quarter, gross refining margins would get affected for half the year at least.”

Reliance’s projected investments in petrochemicals expansion and refinery projects have also exceeded the company’s original estimate by as much as $1.5 billion, to $18.5 billion, according to Credit Suisse.

4G Data Service

A delay in starting the company’s proposed fourth-generation telecommunications data service and cost overruns also worry investors, said Tiwari, who has a buy rating on the stock.

In the call, Reliance projected a total capital expenditure of 1.5 trillion rupees ($22.5 billion) on telecom, up from 1.2 trillion rupees earlier, Citi Research said in a note.

“RIL did not guide to a specific date for commercial launch of telecom services,” Credit Suisse analysts David Hewitt and Badrinath Srinivasan said in their report dated Monday. The company had earlier said that the year to March 2017 will be the first full year of commercial operations for the telecom business.

Reliance spokesman Tushar Pania didn’t immediately respond to an e-mail and phone call seeking comment.