Mumbai: Buoyed by high gross refining margins, Reliance Industries Ltd, India’s most valued private sector firm with a Rs3.84 trillion market capitalization, posted a 24% rise in fourth quarter net profit.
Net profit for the January-March period rose to Rs3,912 crore, from Rs3,156 crore, a year earlier. Revenues rose to Rs38,697 crore from Rs29,276 crore.
The profit figures were higher than what an analysts’ poll conducted by Reuters predicted, but missed the projections of another pool carried out by Bloomberg. Thirteen analysts polled by Reuters had forecast a net profit of Rs3,740 crore and net sales of Rs35,630 crore. However, the mean estimate of 23 analysts surveyed by Bloomberg was higher at Rs4,080 crore.
Reliance said refining margins for the March quarter were $15.5 (Rs618.5 today) a barrel, more than double the benchmark Asian Dubai crack margin, which averaged about $7 a barrel.
This is because the company’s 660,000-barrel-per-day refinery in Gujarat can process cheaper, high-sulphur crude oil, bolstering its margins.
In the refining and marketing segment, earnings before interest and tax rose by 25%, from Rs2,275 crore to Rs2,839 crore, on account of higher margins. In the petrochemicals segment, however, earnings before interest and tax rose by 6% from Rs1,381 crore to Rs1,466 crore.
The margin from petrochemicals in the fourth quarter declined to 10.4% from 11% a year earlier, Reliance said. Petrochemical production rose 8% to 5.1 million tonnes.
“We think our petrochemical margins are as low as they can get,” Alok Agarwal, Reliance’s chief financial officer, said. Paraxylene margins fell by almost $240 a tonne, he said.
The petrochemicals and refinery giant is expected to report better earnings in fiscal 2009 after it begins to pump gas from its deep-sea fields off India’s east coast.
“Our key investments in oil and gas development and refining are expected to commission this year. I expect them to be key drivers to deliver earnings growth in the near future,” Reliance chairman Mukesh Ambani said.
The company’s consolidated net profit for the full year rose 62% to Rs19,458 crore, including exceptional items, and net sales rose 21% to Rs1.39 trillion.
Prior to the results, the Reliance stock rose Rs5.20, or 0.20%, to close at Rs2,642.15 on the Bombay Stock Exchange on Monday even as the Sensex rose 258.13 points, or 1.6%, to 16,739.33.
“This was a landmark year for Reliance as we delivered record financial and operating performance in challenging and volatile market conditions,” Ambani said.
“The company is brilliantly positioned to make a lot of money from the gas business,” said Jon Thorn, who manages $450 million in equities at India Capital Fund in London and doesn’t disclose which shares he owns. “India is short of gas and they are going to capitalize on that,” he said.
Reliance, which may sell a stake of up to 10% in its D6 gas block off India’s east coast, is expected to produce up to 80mcm of gas per day from the second half of fiscal 2009.
Earnings growth may accelerate after Reliance completes the world’s largest refinery complex and starts output at India’s biggest gas field that may yield more of the fuelthan the Gulf of Mexico, according to Macquarie Bank estimates.
“The upside will come in from their upstream and their new refining capacity,” said Mahesh Patil, who oversees $800 million in stocks as fund manager at Birla Sun Life Asset Management in Mumbai. By this time next year, oil and gas will contribute significantly to revenue, he said.
Ambani needs higher profits to fund $24 billion of planned investments in chemical projects in gas-rich West Asia and increase oil and gas exploration to benefit from record energy prices.
The investment plans may help to triple earnings in the next five years, Jal Irani and Amit Mishra at Macquarie, the second-ranked analysts tracking Reliance, said in an April 11 report. (Bloomberg)
Reuters’ Hiral Vora and Mint’s Ankur Relia contributed to this story.