Oct. 16 (Bloomberg) -- Reliance Industries Ltd., India’s biggest company by market value, posted a 16 percent increase in second-quarter profit as earnings from turning crude oil into fuels offset a drop in natural gas output.
Net income in the three months ended Sept. 30 rose to 57.03 billion rupees ($1.16 billion), or 17.40 rupees a share, from a year earlier, the Mumbai-based energy explorer and refiner said in a stock exchange filing yesterday. That matched the median profit estimate of 22 analysts surveyed by Bloomberg and was little changed from the previous quarter.
“Refining has helped them this quarter after fuel demand in Asia rose,” said Rina Sanghavi, a Kolkata-based research analyst at SPA Securities Ltd. “But this may not sustain as their margins are stagnating from quarter to quarter.”
Reliance, controlled by billionaire Mukesh Ambani, may earn less from every barrel of oil processed at its Jamnagar complex, the world’s largest, as global refining capacity additions exceed growth in fuel demand. The company, which sold stakes in 21 fields to BP Plc for $7.2 billion to gain technology, may take as long as three years to reverse a slump in production from India’s biggest natural gas deposit.
Reliance, which has the biggest weighting in India’s benchmark Sensitive Index, slumped 18 percent this year, compared with a 17 percent drop in the index. The stock has trailed a 3 percent decline in China Petroleum & Chemical Corp. and a 2.2 percent gain in Valero Energy Corp.
Reliance’s earnings from every barrel of crude turned into fuels fell to $10.1 from $10.3 a barrel in the three months ended June 30.
Sales rose 37 percent to 785.7 billion rupees from a year earlier, less than the record 810.20 billion rupees in the previous quarter.
Crude oil for November delivery rose $2.57 to $86.80 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 20. Prices have dropped 5 percent in 2011.
Margins of complex refiners in Singapore processing Dubai crude have declined from this year’s high of $8.68 a barrel on Aug. 11 and averaged $6.18 a barrel in the quarter, according to data compiled by Bloomberg.
Refineries in Asia Pacific will add the most supply next year as China brings 730,000 barrels a day of capacity online, mainly to produce gasoline, according to a note by Bank of America Corp. analyst Sabine Schels dated Oct. 5.
The two adjacent refineries that Reliance operates at Jamnagar in the western state of Gujarat can process a combined 1.24 million barrels a day.
The company had cash and equivalents of 614.9 billion rupees as of Sept. 30, Reliance said. Debt was 714 billion rupees.
“Reliance has a strong balance sheet and sustained earning base to pursue growth opportunities,” Ambani said in the statement, without elaborating.
Reliance sold a 30 percent stake in 21 oil and gas fields to BP to help gain deepwater technology and expertise to boost output. The fields include KG-D6 in the Bay of Bengal, where lower pressure and thinner-than-expected reservoirs resulted in production dropping 25 percent. Output may increase in 2014, BP Chief Executive Officer Robert Dudley said Sept. 28.
The decline in gas production to less than 45 million cubic meters a day is likely to have a modest impact on Reliance’s financial health, Moody’s Investors Service said Sept. 28. The block produced 60 million cubic meters in June 2010.
Tests at KG-D6 show that increasing production may not be viable at the current price of gas in India, a person with direct knowledge of the matter said Sept. 23.
Gas from KG-D6 is sold at $4.2 per million British thermal units, a rate set by the government, which is about half the price in the U.K. Output from deepwater deposits needs market prices for gas, Dudley said.
“Triggers are missing and the major one will be higher gas production,” Deepak Pareek, a Mumbai-based analyst with Prabhudas Lilladher Pvt., who has an “accumulate” rating on Reliance, said before the earnings were announced. “Refining margins aren’t expected to rise significantly from here. Investors are primarily waiting for Reliance to boost gas production.”
Reliance, which also owns chemical plants, fuel outlets and a retail-store chain, is diversifying from its core energy business in India to telecommunications, hotels and financial services. The company bought shale gas acreages from three companies in the U.S. last year and plans to buy assets in Canada.
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