UPDATE 1-India's Reliance Q1 profit beats estimates on higher refining margin

Sat Jul 19, 2014 11:53am EDT

* Q1 profit 59.57 bln rupees vs 56.14 bln rupees estimates

* Gross refining margin $8.7/bbl in Q1 from $8.4/bbl yr ago

* Retail unit revenue up 14.5 pct in June quarter (Adds comments from company executive, business details)

By Aman Shah

MUMBAI, July 19 (Reuters) - Indian energy conglomerate Reliance Industries Ltd's quarterly net profit topped market expectations, bolstered by strong revenue growth in its oil and gas business and higher margins in its core refining business.

Reliance, which operates the world's biggest refinery complex in a single location in western India, said average gross refining margin rose to $8.7 per barrel for the June quarter from $8.4 per barrel a year earlier.

A 27 percent rise in sales at its oil and gas exploration and production business - driven by a sharp jump in its U.S. shale gas unit revenue - helped the company, controlled by India's richest man, Mukesh Ambani, post a 13.7 percent rise in the net profit in April-June, its fiscal first quarter.

Investors have been fretting about Reliance's oil and gas exploration business, which for more than two years has suffered sharply falling gas output from the Krishna Godavari D6 block off India's east coast.

Reliance says unexpected geology caused the decline in output, but this has been rejected by the oil ministry, which believes output has fallen due to non-drilling of the promised number of wells. The government has refused Reliance permission to recover $2.4 billion invested in D6 to develop offshore gas fields in order to counter the drastic D6 output drop.

Reliance - and its partners in the block, BP Plc and Niko Resource - are in arbitration with the government over the matter, and a repeatedly deferred rise in natural gas prices.

Alok Agarwal, the chief financial officer of Reliance, said the company had not made any provisions related to the matter.

The increase in gas prices, approved by the previous federal government, would have almost doubled the price of domestically produced gas from the current $4.2 per million British thermal unit from April 1.

"We have said that a better gas price is a prerequisite for investment and nothing has changed," Agarwal said.

RETAIL REVENUE

Reliance posted a net profit of 59.57 billion rupees ($988 million) in the quarter ended June, rising from 52.37 billion rupees a year earlier. Revenue rose 7.2 percent to 1.08 trillion rupees, the company said in a statement on Saturday.

Analysts on average expected it to post a profit of 56.14 billion rupees, according to Thomson Reuters data.

Reliance, which has expanded into consumer-focused services like retail and telecommunications, is in the middle of its largest ever capital investment plan - a three-year, $30 billion investment cycle ending March 2016.

The company posted revenue of nearly 40 billion rupees from its retail business, a growth of 14.5 percent over a year ago. Reliance expects to double sales at the unit every three to four years.

"We are further expanding our retail business in existing markets while exploring newer markets and channels," Ambani said in the company statement.

Shares in Reliance, India's third most valuable company with a market capitalisation of roughly $53 billion, ended down 0.6 percent on Friday at 976.75 rupees. The stock has risen about 9 percent this year.

($1 = 60.2800 Indian Rupees) (Editing by Sumeet Chatterjee and Sophie Walker)

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