MUMBAI (Reuters) - Reliance Industries Ltd (RELI.NS), India’s third-most valuable listed company, posted its third consecutive drop in quarterly profit but beat street expectations as refining margins fell less than expected and treasury gains from its huge cash pile bolstered profits.
Reliance said its quarterly profit fell to 44.73 billion rupees ($809 million), down 21 percent from a year earlier, as margins in its refining and petrochemicals business slipped.
Reliance, once a favourite with foreign funds, has seen a slump in investor interest as profits shrink amid a slowdown in its core energy business and recent forays into consumer-focused segments such as telecom and retail have yet to garner profits.
Its shares have sharply underperformed the main stock index .BSESN over the past 18 months, pulling it down from its ranking as India's most-valuable company, despite a $2.1 billion share buyback announced in January to bolster the stock.
Net sales for the April-June quarter rose 13.4 percent to 918.75 billion rupees, the company said.
A Reuters poll of brokerages had forecast net profit of 43.6 billion rupees for the fiscal first quarter ended June 30, with net sales expected at 887.7 billion rupees.
“The numbers are an improvement and investors may start looking at the company again, but it’s too early to change the outlook for the stock,” said K.K. Mital, head of portfolio management services at Globe Capital Market.
“For that, clarity on utilisation of cash or increase in gas output is the key,” he added.
Output at Reliance’s flagship D6 block, India’s largest offshore gas field, is projected to fall to 20 million standard cubic metres a day (mscmd) in 2014/15 from 28 mscmd in the current fiscal year, a third of the 60 mscmd it was producing in 2010.
Canada’s Niko Resources NKO.TO, which holds a 10 percent stake in the block, last month slashed the reserve estimate for the block, which is jointly operated by Reliance and global major BP (BP.L).
Controlled by billionaire Mukesh Ambani, Asia’s second-richest man, Reliance aims to double its operating profit in the next four to five years as it boosts spending and capacity in its core energy business and builds up its newer retail and telecoms operations.
Reliance, which operates the world’s biggest refining complex in western India, reported gross refining margins of $7.6 a barrel for the June quarter, compared with $10.3 a barrel a year earlier.
The margins were squeezed by high crude prices and a narrowing spread between light and heavy crude prices, but were still higher than analysts’ estimate of $7/barrel.
“Reliance has improved its earnings profile as profits from operations were higher on a sequential basis, on the back of volume growth in the refining business,” Ambani said in a statement.
Reliance’s refinery at Jamnagar in the state of Gujarat can handle less costly high-sulphur crude oil, giving it among the best refining margins in the industry. Refining accounts for nearly 80 percent of the company’s revenue.
Reliance’s petrochemicals business posted a 19 percent rise in revenue on higher demand and prices, but margins declined on narrower spreads.
Its oil and gas exploration business posted a 36 percent fall in revenue, the company said, mainly due to lower production at its main KG-D6 block.
Reliance said it held 707.32 billion rupees ($12.7 billion) in cash reserves at the end of June, up from the previous quarter. The company has seen its cash hoard multiply in the last two years, resulting in a disproportionate increase in profits from treasury operations.
Other income of 19.04 billion rupees, most of it through treasury gains, accounted for almost 35 percent of the company’s pre-tax profit for the quarter.
Shares in the company, valued at $42.6 billion, have risen 4.2 percent so far this year, lagging a 11 percent rise in the main stock index .BSESN. Ahead of the results, the stock closed down 0.7 percent.
($1 = 55.3 rupees)
Reporting by Prashant Mehra; Editing by Matt Driskill and Tony Munroe