Reliance Industries Profit Jumps 28% as Gas Output, Refining Earnings Rise

Reliance Industries Ltd., India’s biggest company by market value, posted its highest quarterly profit since 2007 after growing fuel demand boosted refining earnings and natural gas production rose.

Net income in the three months ended Sept. 30 rose 28 percent from a year earlier to 49.2 billion rupees ($1.1 billion), or 15.1 rupees a share, the Mumbai-based energy explorer and refiner said in a statement to the Bombay Stock Exchange today. Gains from processing crude oil into fuels climbed 32 percent.

Reliance joins Valero Energy Corp., the largest U.S. oil refiner, and China Petroleum & Chemical Corp., Asia’s biggest, in reporting higher earnings as global economic growth spurred demand for gasoline and diesel. Gains in output from India’s largest gas field and refining margins helped Chairman Mukesh Ambani buy shale-gas assets in the U.S. and to plan investments in telecommunications and power generation.

“Demand for fuels has increased over the past year and that has boosted refining,” said Apurva Shah, head of research at Prabhudas Lilladher Pvt. in Mumbai. “General economic conditions have improved, and governments are trying to keep it going. That should keep the demand growth steady and help margins.”

Fuel Demand

Reliance, which has the biggest weighting in India’s benchmark Sensitive Index, rose 1.3 percent to 1,096.25 rupees in Mumbai trading yesterday, valuing the company at $81 billion. The stock has gained 1 percent this year, trailing the 15 percent increase in the index.

Sales rose 23 percent in the second quarter of the year ending March 31, boosting profit to the highest since Dec. 31, 2007. The average estimate of 16 analysts surveyed by Bloomberg was for net income of 48.9 billion rupees in the period.

Exports of oil products surged 79 percent from a year earlier to $13.4 billion in the quarter, with overseas sales volume increasing 49 percent to 19.7 million metric tons, according to today’s statement.

Average global demand for oil products increased 2.8 percent to 87.1 million barrels a day in the quarter from a year earlier, according to data compiled by Bloomberg.

Reliance operates the world’s largest oil-refining complex and chemical plants and owns fuel outlets and a retail-store chain. The 1.24 million barrel-a-day complex consists of two adjacent refineries at Jamnagar in the western Indian state of Gujarat.

Refining Margins

The company earned $7.9 on every barrel of crude turned to fuels in the quarter, compared with $6 a barrel a year earlier, the company said. Pretax profit from refining increased 63 percent to 21.9 billion rupees.

Global refining margins, or earnings from processing oil into fuel, rose to $4.53 a barrel in the three-month period from $3.42 a year earlier, according to data compiled by BP Plc. The margin was $5.49 a barrel in the quarter ended June 30.

Crude oil in New York gained 12 percent to an average $76.20 a barrel in the quarter, boosted by demand from India and China, Asia’s two fastest growing economies. Crude oil for December delivery fell 75 cents to settle at $81.43 a barrel on the New York Mercantile Exchange yesterday.

The KG-D6 field in the Bay of Bengal, off India’s east coast, started in April last year and reached 40 million cubic meters a day in six months, helping India increase output of the cleaner-burning fuel at the fastest pace in the world last year. Output has remained static at 60 million cubic meters this year because a review of the reservoir and safety procedures forced Reliance to delay a planned increase to 80 million cubic meters.

Reliance cut crude oil output in the MA field in the KG-D6 area by 29 percent since April after wells were unable to sustain higher production rates, a person familiar with the matter said Oct. 1.

Diversifying Business

Net sales rose to 574.8 billion rupees, Reliance said. The company had 293.5 billion rupees in cash and equivalent. Outstanding debt as of Sept. 30 was 682 billion rupees.

With gas production stagnant in India in the last three quarters, Reliance is diversifying from its core energy business at home. The explorer said it plans to spend at least $5 billion over the next five years to develop shale-gas areas in the U.S.

Reliance paid $943 million to buy three shale-gas assets in the U.S. this year and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.

Reliance bought a 14.8 percent stake in EIH Ltd., owner of India’s luxury Oberoi hotel chain, in August. The group includes a Mumbai hotel that was damaged in the November 2008 terror attack.

India’s economy expanded 8.8 percent, the fastest pace in 2 1/2 years, in the three months ended June 30, bolstering demand for services and providing alternative sources of revenue for Reliance.

Ambani, 53, has invested more than $1.2 billion in a broadband company and a cargo carrier and has announced plans to build hospitals, universities and set up a sports marketing company.

Reliance expects its retail-store business revenue to grow 10-fold to 450 billion rupees in five years, Ambani told shareholders June 18.