April 23 (Bloomberg) -- Reliance Industries Ltd., owner of the world's biggest refining complex, posted its second consecutive decline in quarterly profit as the global recession cut demand for fuels, driving down margins.
Net income in the three months ended March 31 fell 9.2 percent to 35.5 billion rupees ($709 million), or 23.4 rupees a share, from 39.1 billion rupees, or 26.9 rupees, a year earlier, Reliance said in a statement to the Bombay Stock Exchange today. Sales declined 24 percent to 283.6 billion rupees.
Reliance, controlled by billionaire Mukesh Ambani, gets 70 percent of its revenue from exports of gasoline and fuel that have slowed as the world economy contracts. Profit may recover after the company started selling natural gas from its biggest field in India.
"We see their gas business driving the company in the future," said Rohit Nagraj, Mumbai-based analyst with Prabhudas Lilladher Pvt. "The company managed to hold refining margins this quarter, but the overall outlook for that business is bleak globally."
Reliance made a one-time provision of 3.7 billion rupees toward estimated claims on account of subsidiaries, the company said in the statement, without elaborating. Profit before providing for the claims was 38.7 billion rupees. The median estimate of 13 analysts surveyed by Bloomberg was for net income of 36.5 billion rupees.
Income from activities other than the main business of refining, chemicals and retailing increased to 9.9 billion rupees in the quarter from 2.9 billion rupees a year earlier, the Mumbai-based company said.
Share Gain
India's most valuable company, which reported its first drop in profit in three years in the December quarter, has climbed 43 percent in Mumbai trading this year compared with a 15 percent gain in the Bombay Stock Exchange's benchmark Sensitive Index.
The stock gained 2.7 percent to 1,763.7 rupees in Mumbai today before Reliance reported earnings.
Ambani is investing $5.2 billion to develop the first phase of the KG-D6 field in the Krishna-Godavari basin off the east coast. Reliance may spend an additional $5.9 billion on developing fields around the areas from where gas production started on April 2, according to V.K. Sibal, India's oil regulator.
Gas, Recession
Gas output may climb to 80 million cubic meters a day in a year, R.S. Pandey, the government's Oil Secretary, said April 2.
The area may hold as much as 9.2 trillion cubic feet of gas, according to Reliance's partner Niko Resources Ltd., based in Calgary, Canada.
Gas sales to power producers and fertilizer makers in India may help offset a slump in fuel demand and refining margins as the world economy shrinks. Reliance may also benefit from the rupee's 2.5 percent decline against the dollar this year.
The International Monetary Fund said yesterday the world economy will shrink 1.3 percent this year and the global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize.
Oil prices in New York rebounded today as the dollar dropped against the euro, bolstering the appeal of commodities as a currency hedge.
Crude oil for June delivery rose as much as $1.07, or 2.2 percent, to $49.92 a barrel in electronic trading on the New York Mercantile Exchange. The contract traded at $49.47 at 1:44 p.m. London time.
Refining Margins
Reliance made a profit of $9.9 from turning a barrel of crude oil into fuels at its refinery during the quarter, the company said. That compares with $15.5 a barrel a year earlier.
"The difference between prices of heavy and light crude oil has narrowed and this has affected Reliance's refinery margins," said Mumbai-based Deepak Pareek, an analyst at Angel Broking Ltd., who has a "buy" rating on the stock.
UBS AG cut its forecast for first-half refining margins in Asia by 60 percent, citing expectations of overcapacity due to lower demand and the start-up of production plants. Average Singapore refining margins may be $4 a barrel this half, down from an earlier forecast of $10 a barrel, UBS said in a March 24 report.
"Lower margins from the core refining business will partly be offset by a weaker rupee," said Amit Rustagi, a Mumbai-based analyst at Antique Stock Broking Ltd. He recommends investors buy Reliance shares.
Local Sales
Reliance also plans to counter declining overseas demand by selling fuels within India, the second-fastest growing major economy, and has given up the export-only status of its first refinery at Jamnagar in Gujarat state. The plant is capable of processing 33 millions tons of crude a year.
In December, the company started operating a 29 million ton-a-year oil refinery adjacent to the older unit. The new refinery can produce high-quality fuels using low-grade crude and shift production among products based on market prices.
Net income for the financial year ended March 31, including one-time items, fell 22 percent to 152.8 billion rupees on sales of 1.5 trillion rupees, Reliance said.
To contact the reporters on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net Rakteem Katakey in New Delhi at rkatakey@bloomberg.net .
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