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Reliance Sees Strong Refining Margins Backed By Solid Demand

Reliance operates the world's biggest refining complex in western India and analysts expect an upgrade currently underway to improve margins by $2 to $3

Photo Credit : Reuters

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India's oil-to-telecoms conglomerate Reliance Industries reported quarterly results on Thursday that were in-line with expectations, and said it expects refining margins to remain strong, driven by rising fuel demand.

Reliance, controlled by India's richest man, Mukesh Ambani, said its fiscal second-quarter profit was Rs 72.06 billion ($1.1 billion) for the quarter to 30 September. That roughly matched analysts' estimates of Rs 72.2 billion, and was well above its year-ago profit of Rs 50.35 billion on the same basis.

On a net basis, the country's largest refiner reported a 23 per cent drop in its quarterly profit, as its year-ago profit was boosted by a Rs 45.74 billion gain from an asset sale.

It said gross refining margin, or profit earned on each barrel of crude processed - a key profitability gauge for a refiner -- came in at $10.1 per barrel for the three months to 30 September, accelerating its lead over the regional benchmark Singapore GRM.

A senior company executive defended the refining margins saying they could be sustained.

"These are not one quarter numbers, the margins are improving consistently every quarter," said V. Srikanth, joint chief financial officer of Reliance.

Reliance operates the world's biggest refining complex in western India and analysts expect an upgrade currently underway to improve margins by $2 to $3.

The company's refinery upgrade plan is at "advanced stages of mechanical completion and pre-commissioning," said Ambani in a statement, adding this would further strengthen the company's position.

Fuel demand in India, the world's third-largest consumer, is rising fast as higher income levels and cheaper credit boost vehicle sales. The International Energy Agency estimates India's fuel demand will be 10 million barrels per day (bpd) by 2040.

Reliance gets 95 percent of its profit from oil refining and petrochemicals, but has been spending aggressively to expand in retail, telecoms and e-commerce.

Its Jio 4G telecoms unit has spent more than $20 billion to build a nationwide network that started commercial operations in September, reaching 16 million customers in the first month. Reliance Jio is giving telecoms services free until the end of the year, triggering a price war among rivals.

Jio is adding about half a million subscribers a day, Anshuman Thakur, head of strategy, told reporters on Thursday.

For the September quarter, Reliance's revenue rose 9.6 per cent from a year earlier to Rs 816.51 billion.

Its outstanding debt rose to Rs 1.89 trillion as of end-September, while it had Rs 825.33 billion  of cash and cash equivalent, it said.

(Reuters)


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