Gas sales to lift Reliance results; M&A key

MUMBAI Wed Apr 21, 2010 10:27am IST

Reliance Industries KG-D6's facility located in Andhra Pradesh is pictured in this undated handout photo. REUTERS/Reliance Industries/Handout

Reliance Industries KG-D6's facility located in Andhra Pradesh is pictured in this undated handout photo.

Credit: Reuters/Reliance Industries/Handout

Related Topics

MUMBAI (Reuters) - Energy major Reliance Industries should post a second straight increase in quarterly profit, lifted by higher gas output from fields off India's east coast and a nascent recovery in refining margins.

India's leading listed conglomerate, controlled by billionaire Mukesh Ambani, has been scouting for acquisitions overseas, and progress on that front will determine its outlook.

Reliance, valued at $78 billion, recently said it would pay $1.7 billion to form a joint venture at one of the most promising natural gas deposit regions in the United States with Atlas Energy.

The deal followed two failed attempts to buy overseas firms as Reliance looks to expand its presence outside India, break into new markets and broaden its businesses, which include refining, oil and gas exploration and petrochemicals.

"The company has already invested in its own projects such as its gas fields in India and is going to generate a lot of cash flow," said Deepak Pareek, an oil and gas analyst at Mumbai-based Angel Broking.

"A lot of that cash has to be pumped into overseas growth opportunities and that's exactly what it's done with Atlas." Bankers say more overseas deals could be in the offing.

The outcome of a long-running gas dispute with Reliance Natural, led by Mukesh's younger brother Anil, will also have a bearing on the company's outlook.

Reliance is unable to hit peak gas production of 80 million standard cubic metres a day (mmscmd) at its D6 block in the vast

Krishna Godavari basin in the Bay of Bengal due to customers not buying allocated volumes, and a lack of pipelines.

But analysts say current production of 63-64 mmscmd is still enough to boost results. Reliance began pumping gas from the block in April last year.

Analysts estimate gross refining margins (GRMs), a key measure of profitability, will have dropped about 16 percent year-on-year in the March quarter to $8.30 a barrel, tracking a decline in Asia's benchmark Dubai crack margin. Reliance GRMs nearly halved to $5.90 a barrel in the December quarter.

The company's results will be helped by its acquisition last year of unit Reliance Petroleum.

State-run explorer Oil and Natural Gas Corp is expected to post higher earnings on firmer oil prices, but subsidy payouts the group is required to make to state retailers will keep results muted.

A lack of clarity about the government's subsidy rules means analysts estimates for ONGC are often disparate.

"What you'd want to bet on is a company's business or its management decisions," said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services. "But here you are betting on whether a government policy will change or not, which just can't be figured out."

Poll contributors: Angel, Citigroup, K.R. Choksey, Motilal Oswal, Morgan Stanley, Macquarie, Prabhudas Lilladhar, Kotak,

BofA, B&K.

(Editing by Ranjit Gangadharan and Ian Geoghegan)

FILED UNDER:

Religion and Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage