Gas holds out hope for RIL

Refining Margins Seen Improving RELIANCE Industries (RIL), the nation's most valuable company, posted a 6.4% fall in quarterly earnings matching expectations, as it got lower prices for its petroleum products in the global markets due to a supply glut. But the gas business holds the promise of rising profits even as a legal tussle over it continues.      The company's net profit for the September quarter fell to Rs 3,852 crore, or Rs 23.40 a share, from Rs 4,116 crore and Rs 27 a share a year earlier, said a statement from the company. Its gross revenues rose 6.1% to Rs 48,843 crore from Rs 46,014 crore a year earlier. An ETIG poll of seven analysts' forecast showed net profit may fall 5.6% to Rs 3,889 crore. The earnings does not include profit of Rs 2,941 crore from the sale of its own shares.      "The timely completion of the new SEZ refinery and the deep water, oil and gas K-G D6 block and their safe and stable ramp-up are noteworthy accomplishments for the company. These projects have contributed meaningfully in RIL achieving a record level of profits despite the challenging business and economic environment," chairman Mukesh Ambani said in a statement on Thursday. Petrochem, oil & gas exploration businesses prop up earnings  OIL companies across the globe including BP are hurt by lower refining margins as the demand weakened in the wake of recession in developed economies such as the US, Europe and Japan and more refineries commenced production. But Reliance benefited from the beginning of gas production from its block off the East Coast over which it is in a legal dispute with chairman's estranged younger brother Anil Ambani's Reliance Natural Resources.      "Increasing production of gas over next few quarters will continue to grow RIL's profits," said Deepak Pareek, analyst at Angel Broking. "We can see its refining margins improve next year with global economic recovery, while stability in petrochemical margins is good."      Revenues from its refining and marketing business rose 9% to Rs 39,564 crore, while its refining margins, profit on processing every barrel of crude, halved to $6 a barrel pulling the pre-tax profits from the division to Rs 1,347 crore, from Rs 2,774 crore a year earlier. Global refining margins declined to $3.42 a barrel in the three months ended September compared with $6.20 a barrel a year earlier, according to BP data.      The petrochemicals and the oil & gas exploration businesses prevented a sharper fall in the earnings as it realised higher prices for products such as polyester and polymer and from the sale of gas.      While pre-tax profit from petrochemicals business rose 16% to Rs 2,195 crore, gas division's pre-tax earnings rose 90% to Rs 1,226 crore, according to the statement.      "Falling EBIT margins in oil and gas segment is area of concern especially when crude prices went up and gas prices remained unchanged," said investment advisor SP Tulsian. "Also the new refinery contributing less than 5%in RIL's PBT shows that RIL is selling its products at huge discount in the international market."      But the company says the return ratios are set to improve.      "It is RIL's highest ever EBITDA and PBT. PAT has been impacted by higher depreciation and higher tax provisioning Lower prices (45.2%) has been offset by volume growth (36.5%). Once KG D6 productions starts fully hope that return on capital and return on equity will cross 20%," said RIL in a statement.      RIL is fighting a case in Supreme Court seeking to overturn a lower-court order to supply gas to RNRL at 44% less than a price set by the government in 2007. RIL could lose as much as $600 million a year in earnings before interest, tax, depreciation and amortisation if it loses the case, according to Moody's Investors Services.      Its shares fell 1.56% to close at Rs 2003.85 on BSE on Thursday.