Reliance sees strong refining margins as Q2 profit drops

By Promit Mukherjee

MUMBAI (Reuters) - India's oil-to-telecoms conglomerate Reliance Industries Ltd expects its refining margins to remain strong, driven by rising fuel demand, although the nation's biggest refiner reported a 23 percent drop in second-quarter profit.

Consolidated net profit at Reliance, controlled by India's richest man, Mukesh Ambani, fell to 72.06 billion rupees ($1.1 billion) for the quarter to Sept. 30 from 93.45 billion rupees a year earlier, it reported on Thursday.

That roughly matched analysts' estimates of 72.2 billion rupees. The company restated year-ago quarter profit, which had been boosted by a one-off income, as it moved to a new accounting system.

It said gross refining margin, or profit earned on each barrel of crude processed -- a key profitability gauge for a refiner -- came in at $10.1 per barrel for the three months to Sept. 30, accelerating its lead over the regional benchmark Singapore GRM.

A senior company executive defended the refining margins saying they could be sustained.

"These are not one quarter numbers, the margins are improving consistently every quarter," said V. Srikanth, joint chief financial officer,

Reliance operates the world's biggest refining complex in western India and analysts expect an upgrade now underway to improve margins by $2 to $3.

Fuel demand in India, the world's third-largest consumer, is rising fast as higher income levels and cheaper credit boost sales of cars and bikes. By 2040, India's fuel demand will leapfrog to 10 million barrels per day (bpd), according to the International Energy Agency.

Reliance gets 95 percent of its profit from oil refining and petrochemicals, but has been spending aggressively to expand into retail, telecoms and e-commerce.

Its Jio 4G telecoms unit has spent more than $20 billion to build a nationwide network that started commercial operations in September, reaching 16 million customers in the first month. Reliance Jio is giving telecoms services free until the end of the year, triggering a price war among rivals.

Jio is adding about half a million subscribers a day, Anshuman Thakur, head of strategy, told reporters on Thursday.

For the September quarter, Reliance's revenue rose 9.6 percent from a year earlier to 816.51 billion rupees. Its outstanding debt rose to 1.89 trillion rupees as of end-September, while it had 825.33 billion rupees of cash and cash equivalent, it said.

Ahead of the results Reliance shares closed little changed in a Mumbai market that gained 0.5 percent.

($1 = 66.7819 Indian rupees)

(Writing by Sankalp Phartiyal; Editing by Ruth Pitchford)