UPDATE 2-Reliance Inds Q1 net up 32 pct, margins seen rising

Tue Jul 27, 2010 11:53am EDT

* Q1 net 48.5 bln rupees vs forecast 48.3 bln

* Refining margins seen improving - analyst

* Capital expenditure in FY11 $1.5 bln-$2 bln - CFO

* Profit rises for 3rd straight qtr on higher gas output

* Refining margins at $7.3/barrel vs yr-ago $6.8/barrel

(Adds analyst, management comments, byline)

By Pratish Narayanan

MUMBAI, July 27 (Reuters) - Reliance Industries (RELI.BO), India's largest listed company, posted a 32 percent rise in June quarter profit on higher gas production, with demand for refined products in fast-growing Asia and improving margins set to drive growth.

Reliance, with interests in petrochemicals, refining, oil and gas exploration, and retail, recently made a dramatic return to India's telecoms arena and has announced plans to enter the country's power sector.

The company is also expanding its presence overseas by investing in new areas such as shale gas, a move that is expected to boost earnings in the years ahead.

"The new businesses are very important triggers for Reliance earnings going forward," said Deven Choksey, CEO of KR Choksey Shares. "We should also see improved margins for petrochemicals and refining from this quarter as demand for oil product rises."

The conglomerate controlled by billionaire Mukesh Ambani, the world's fourth-richest man, recently bought significant stakes in the shale gas assets of U.S. companies Atlas Energy Inc ATLS.O and Pioneer Natural Resources (PXD.N). [ID:nSGE65N06C]

"Every major oil company in the world has made a significant investment in shale gas. This is something that nobody can afford not to be a part of," Reliance Chief Financial Officer Alok Agarwal told reporters.

"The JVs really allows us to understand this business, work with good operators, learn the business and then be able to do it ourselves," he said, referring to its shale gas joint ventures in the United States.

Reliance's capital expenditure on existing projects in this financial year to March 2011 would be $1.5 billion to $2 billion, Agarwal said.

Ambani struck a deal in May with his long-estranged brother Anil allowing them to compete directly with each other. Mukesh has since pursued markets where Anil is an established presence. [ID:nSGE65A071]

This came after India's Supreme Court in May backed Mukesh in a bitter public dispute over gas pricing that had hit Reliance Industries' share price performance. [ID:nSGE64M01P]

Shares in Reliance, valued at around $74 billion, remained largely unchanged at 1,053.50 rupees in Tuesday trade on the Bombay Stock Exchange .BSESN, which rose 0.3 percent. Reliance announced quarterly results after the markets closed.

MARGINS IMPROVE

Reliance posted April-June net profit of 48.51 rupees ($1.04 billion), in line with forecasts, versus 36.66 billion rupees ($785 million) a year ago helped by higher gas output from its fields off India's east coast and improved refining margins.

A Reuters poll had forecast quarterly net profit of 48.3 billion rupees. [ID:nSGE66M09E]

Gross refining margins at Reliance's flagship refining business showed signs of recovery and stood at $7.3 per barrel for the June quarter, but were still lower than market forecasts for $7.7 a barrel.

The margins, a key measure of profitability, stood at $6.8 a barrel in the year-earlier quarter. Reliance GRMs had dropped 24 percent in the March quarter, and had nearly halved in the December quarter.

Agarwal said Reliance would not increase output at its KG D6 block off the east coast of India until a full review of the reservoir is completed. The review will "take time", he said, but did not elaborate.

Production at the D6 block, from which Reliance started pumping gas last April, stands at 60 million standard cubic metres of gas a day (mmscmd). The block is expected to double India's gas output when it reaches peak production of 80 mmscmd.

Reliance shares have fallen 3.4 percent in 2010, while the benchmark market index has gained 3.5 percent. ($1=46.7 rupees) (Writing by Sumeet Chatterjee; Editing by Jui Chakravorty and Erica Billingham)

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