Weak Refining Margins Hurt Reliance Earnings

123jump.com Staff
24 Jul, 2009
New York City

Reliance Industries, the most valued company in India, revenues declined 22.6% to $7 billion and net income fell 11.5% to $759 million in the fiscal first quarter ending in June. The price decline in crude oil and sharp fall in refining margins contributed the revenues and earnings shortfall.

[R]6:30 PM Mumbai, 9:00 AM New York – Reliance Industries revenues declined 22.6% to $7 billion and net income fell 11.5% to $759 million in the fiscal first quarter ending in June. The price decline in crude oil and sharp fall in refining margins contributed the revenues and earnings shortfall.[/R]

Reliance Industries revenues declined 22.6% to 33,309 crore rupees ($7 billion) in the first quarter ending in June compared to a year ago quarter and net income fell 11.5% to 3,636 crore rupees ($759 million).

The price decline accounted for 24.4% fall in revenues and off-set by 1.8% increase in volume.

Earnings per share declined to 23.10 rupees ($0.48) compared to 28.30 in the prior year quarter excluding exceptional items. Exports in the quarter declined 38.5% to 17,433 crore rupees and gross refining margins in the quarter were $7.5 a barrel.

Future earnings are expected to be driven by higher sales of natural gas from KG-D6 Block gas reserve. The company has ramped up its production to 30 mmscmd and provides natural gas to 15 fertilizer plants, 15 power plants designated by the Indian government and 2 steel companies.

The natural gas production is expected to surge to 80 mmscmd. The KG-D6 field is based in the Bay of Bengal, 50 km off the Kakinada coast at a depth of 8,000 ft.

The weak global markets has decreased the demand for gasoline and forced the company to look at the domestic markets. The company relinquished its export only status on April 16 and is looking to distribute natural gas and gasoline to local stations in India.

The refining margins at Reliance have declined from a year ago but are still higher than the global average of between $4 and $5.50 a barrel. Refining margins in the quarter plunged to $7.5 a barrel from $15.70 a barrel in the quarter a year ago.

The refining and marketing business reported earnings of 1,115 crore rupees compared to 1,953 crore rupees.

The company press release noted that Jamnagar refinery processed 7.96 million tons of crude oil with a utilization rate of 96.5% compared to 8.13 million tons in the quarter a year ago.

During the quarter average refinery utilization in North America was 78.9%, in Europe 78% and in Asia 86.2%.

Reliance also repurchased 5% stake in Reliance Petroleum from Chevron subsidiary in Singapore.

Net debt to equity ratio was 0.24 in the quarter. The company has outstanding debt of 51,780 crore rupees ($10.8 billion) compared to 53,457 crore rupees at the end of March 2009.

The company has cash and cash equivalent of 21,827 crore rupees or $4.6 billion at the end of the quarter.

Reliance Industries owns 54 exploration blocks in eight countries.