Reliance Misses Profit Estimates for Fifth Time in Six Quarters

Reliance Industries Ltd. (RIL), India’s biggest company by market value, missed analysts’ earnings estimates for the fifth time in six quarters after natural gas production from the nation’s biggest deposit declined.

Net income in the three months ended March 31 rose 14 percent to 53.8 billion rupees ($1.2 billion), or 16.40 rupees a share, from 47.1 billion rupees, or 14.40 rupees, a year earlier, the Mumbai-based company said in a statement to the Bombay Stock Exchange yesterday. The average estimate of 18 analysts in a Bloomberg survey was 54.3 billion rupees.

Output of gas from the KG-D6 field declined because of falling pressure, eroding higher earnings from refining driven by a 20 percent surge in average crude prices in the quarter from a year earlier. The slowest profit growth in six quarters may constrain billionaire Chairman Mukesh Ambani’s plans to invest in telecommunications, power generation and hotels.

“Gas production continues to be the major overhang on earnings,” P. Phani Sekhar, a fund manager at Angel Broking Ltd. in Mumbai, which owns Reliance shares, said before the results were announced. “Investors are looking for clear 20 percent growth in profit for at least four quarters and that is not there now. The shares will continue to remain at this level.”

Reliance rose 1.4 percent to 1,040.60 rupees at close in Mumbai yesterday, giving the company a market value of about $77 billion. The stock has declined 1.3 percent in the past year compared with a 12 percent increase in the benchmark Sensitive Index. The earnings were announced after the market closed.
Government Not Satisfied

Reliance is producing 50 million cubic meters a day of gas compared with a target of 69.8 million cubic meters, S.K. Srivastava, director general at India’s oil regulator, told reporters in New Delhi yesterday. The government isn’t satisfied with Reliance’s explanation for the decline, he said, without elaborating.

Production fell from 60 million cubic meters a day because of declining pressure at the reservoir, a person with direct knowledge of the matter said April 11.

Pretax profit from selling crude oil and gas declined 8 percent to 15.7 billion rupees in the three months ended March 31, Reliance said in an e-mailed statement. Ambani roped in BP Plc as a partner to help increase gas production, which has trailed targets and hurt profit.
BP as Partner

BP agreed in February to pay $7.2 billion for a 30 percent interest in 23 blocks in India from Reliance and to form a venture to market gas. The deal size may increase to $20 billion with future performance payments and investment. BP’s investment will accelerate development and production from Reliance’s fields in India, Ambani said Feb. 22.

Reliance had outstanding debt of 674 billion rupees as of March 31 and cash and equivalents of 423.9 billion rupees, the company said.

Pretax profit from refining rose 26 percent to 25.1 billion rupees in the quarter, according to the statement. The recovery from the 2009 global recession spurred demand for fuel and helped to increase refining margins.

Reliance’s two adjacent refineries at Jamnagar in the western state of Gujarat, the largest such complex in the world, earned $9.20 on every barrel of crude oil turned into fuels compared with $7.50 barrel a year earlier, according to the statement. The plants, which can process a combined 1.24 million barrels a day of crude, produce gasoline, diesel and naphtha, which are exported to the U.S., Europe and Asia.

The refiner processed 16.7 million metric tons of crude oil in the quarter, unchanged from a year earlier.
Heavy Grades

Reliance buys heavy grades of crude oil, which are cheaper than lighter varieties, and turns them into high-quality products including gasoline and diesel. A wider difference between heavy and light grades of crude oil helps Reliance increase its refining margins.

The difference between light Brent crude oil and heavier Dubai oil averaged $4.9 a barrel in the three months ended March 31, more than three times the level a year earlier, according to data compiled by Bloomberg. The spread reached $7.22 a barrel on April 11, the highest in 30 months.

Essar Oil Ltd. (ESOIL), the operator of India’s second-largest non- state, crude-oil refinery, earned $8.15 on every barrel processed in the quarter compared with $5.37 a year earlier, according to an April 11 statement.

Crude oil in New York has climbed 22 percent this year to $111.75 a barrel. It rose 20 percent to an average of $94.6 a barrel in the three months ended March 31 from a year earlier, according to Bloomberg data.

Reliance, which has interests in retail chain stores and chemicals, has bought stakes in a broadband provider, a cargo airline and a hotel chain to diversify the risks of investing primarily in the oil and gas business.