Reliance Beats Estimates as Earnings Jump to Nine-Year High

  • Refiner’s third-quarter profit at 80.2 billion rupees
  • Analyst estimates forecast profit at 78.5 billion rupees

Reliance Industries Ltd.’s profit in the third quarter increased 10 percent from a year earlier to its highest level in nine years, buoyed by higher petrochemicals earnings and investment gains.

Net income for the operator of the world’s biggest oil-refining complex rose to 80.2 billion rupees ($1.2 billion) in the three months ended Dec. 31, the most since the December quarter of 2007 and up from 73 billion rupees a year ago, the Mumbai-based company said Monday in a stock exchange filing. That compares with a 78.5 billion-rupee average of 12 analyst estimates compiled by Bloomberg. Sales rose nine percent to 666.1 billion rupees.

Higher profits from the refining and petrochemicals businesses are crucial for Mukesh Ambani-controlled Reliance as the company is investing billions of dollars in new areas, which are yet to turn a profit. Reliance has invested $25 billion on a fourth-generation mobile service that it started in September and plans to invest $4.4 billion more, even though it is yet to start charging customers for the services. It has also expanded into retailing of groceries, electronics and merchandise. Still, oil and petrochemicals comprise more than 95 percent of its profit.

“Stable margins in the core business, mainly refining and petrochemicals, coupled with higher other income boosted profits,” said Dhaval Joshi, a Mumbai-based analyst at Emkay Global Financial Services Ltd. “We need to watch the company’s telecom business now. Customer response once the company starts charging and the revenue flow thereafter will be key for its stock performance.”

Margins

Reliance’s refining margin fell to $10.8 a barrel in the quarter from $11.50 a barrel a year earlier, the company said. It earned $10.10 for every barrel of crude it turned into fuels in the three months ended September. Its earnings per share rose to 24.7 rupees from 22.5 rupees a year earlier.

The company’s income earned from investments increased 33 percent to 30.25 billion rupees primarily due to higher profit from the sale of some fixed-income products, Srikanth Venkatachari, Reliance’s joint chief financial officer, said at a press conference. Operating profit, or earnings before interest and tax, from its refining business fell 4.3 percent from a year earlier to 61.9 billion rupees and rose 26 percent to 33 billion rupees from its petrochemicals segment.

The company processed 17.8 million tons of crude oil during the quarter, lower than the 18 million tons refined a year earlier, following a five-week shutdown at a catalytic cracking unit.

The company operates two refineries in the western state of Gujarat, with a combined capacity of 1.24 million barrels a day. These units can turn cheaper, lower grades of crude into high-value products.

“Both oil demand and polyester and polymer demand have been good in India,” Srikanth said, adding that oil demand in the first nine months of the financial year starting April grew 9 percent while polymer and polyester demand rose 5 percent. “Demand for oil has been strong point for India. India continues to be a market which the world is watching.”

Reliance shares fell 1.3 percent to 1,076.25 rupees at the close in Mumbai, while the benchmark S&P BSE Sensex Index gained 0.2 percent. The earnings were announced after trading ended.

Reliance’s revenue from its retail business expanded 47 percent to 86.9 billion rupees in the quarter ended December, with operating profit increasing 55 percent to 2.3 billion rupees. The company said it opened 111 stores, taking the total to 3,553 outlets. In the telecom business, Reliance had 72.4 million subscribers at the end of the quarter.

— With assistance by Siddharth Vikram Philip

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