Uncertainty about output from Reliance Industries’ gas fields off India’s east coast is acting as a lid on the company’s share price, analysts say, while the latest earnings figures have brought disappointment on another front – the usually reliable refining business.
Adeel Halim/Bloomberg News
Reliance is producing 28% less gas than expected from KG-D6 field off India’s east coast.
After markets closed Thursday, Reliance said January-March net profit rose 14.4% from a year earlier to 53.76 billion rupees ($1.2 billion)—lower than the 55.83 billion rupees ($1.25 billion) forecast in a poll of 10 analysts.
Gross refining margins—broadly the difference between what a refiner pays for crude oil and the price of fuel products sold—were at $9.2/barrel, significantly below estimates of $10/barrel.
The company says a one-off factor is responsible for weak earnings from the refining business. In a research note Monday, Citigroup said Reliance’s management had indicated that refining margins were lower-than-expected due to a planned shutdown of a fluidized catalytic cracking unit, which hurt production of higher value high-margin fuel products.
Gas output remains the key concern. Late Thursday, India’s upstream regulator said Reliance is producing 28% less gas than expected from the D6 block of the Krishna Godavari basin (KG-D6) field off India’s east coast and has not given a satisfactory response for the shortfall.
Reliance Industries shares opened sharply lower after the long Easter weekend and in early afternoon trade were down 2.9% at 1,010.20 rupees ($22.7). The company was the biggest loser in the 30-share benchmark Sensex, which was up 0.1%.
Alok Deshpande, an analyst at Elara Securities, said Reliance’s refining and petrochemical units should support earnings over the next two-three quarters. However, he added that he is not overly bullish on the stock because there is no clarity about gas output from the KG basin.
Citigroup said Reliance’s management once again didn’t provide any guidance for a future ramp-up of gas output from the block.
In February, investors welcomed a partnership between Reliance and British energy giant BP Plc., hoping that the latter’s expertise in deep-sea drilling would help increase gas output from KG-D6 basin.
But gains in the company’s share price have been eroded following reports that Reliance expected gas output from the fields to fall. Since the deal with BP was announced on Feb. 21, Reliance shares have risen 5.7%, underperforming the Sensex’s 6.5% rise.
Reliance said Monday it is drawing up a plan to raise production from the KG-D6 block. But investors should remain cautious until the plan bears fruit.
Fuente: India Real Time