Reliance posts 16% profit despite drop in natural gas output

India’s biggest company by market value, Reliance Industries Ltd., posted a 16% increase in earnings during the second quarter after a drop in natural gas output was offset by earnings gained from turning crude oil into fuel. The Mumbai-based energy explorer and refiner said that its net income in the three-month period which ended last September 30 rose to Rs57.03 billion (US$1.16 billion) or Rs17.40 a share (US$.33). Bloomberg surveyed 22 analysts and all said that the figure cited by Reliance match the median profit estimate they arrived at, which showed very little change 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,” she added.

Production slump at Reliance Industries

Reliance is controlled by billionaire Mukesh Ambani and owns the world’s largest petroleum refineries and petrochemical plant complex in Jamnagar in the state of Gujarat. But as global refining capacity additions exceed growth in fuel demand, the company may earn less from each barrel of oil that is processed at its Jamnagar complex. It has already sold stakes in 21 of its fields to BP Plc for US$7.2 billion to gain expertise to boost output as well as deepwater technology. It is believed that the company may take as long as three years to reverse a slump in production from India’s biggest deposit of natural gas. The company has the biggest weight in India’s benchmark Sensitive Index (Bombay Stock Exchange). This year, it dropped by 18%, compared to a 17% drop in the index. Reliance’s profit from each barrel of crude turned into fuels fell from US$10.30 a barrel to US$10.1 during the three-month period which ended June 30. As of September 30, the company had cash and equivalents of Rs614.9 billion (US$11.8 billion) , and debt was Rs714 billion (US$13.7 billion). Inspite of this, Ambani said, “Reliance has a strong balance sheet and sustained earning base to pursue growth opportunities.” (October 16, 2011)