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Reliance Industries Limited : UPDATE : Reliance Industries Profit Drops; Announces $2.07 Billion Share Buyback

01/20/2012 | 09:26am US/Eastern
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--October-December net profit declines 14%, sales up 42%

--Reliance to buy back up to 120 million shares for $2.07 billion

--Reliance chairman says to invest prudently in future growth engines

(Combines related articles, add comments from Reliance chairman in 9th paragraph, analyst's comment in 3rd paragraph, earnings details in 11th and 13th paragraphs)

By Rakesh Sharma

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Reliance Industries Ltd. (500325.BY) Friday reported its first decline in quarterly net profit in more than two years and said it will spend up to INR104.40 billion ($2.07 billion) to buy back shares, as the company seeks to utilize its huge cash pile and support its battered stock.

The Mumbai-based refiner and explorer aims to buy up to 120 million shares at a maximum price of INR870 apiece. The buyback--the first by Reliance since December 2004--could be India's largest share repurchase program ever.

"The buyback price will generate confidence in the market," said Jagannadham Thunuguntla, head of research at SMC Global Securities Ltd.

The maximum buyback price is about 10% higher than Friday's closing level of INR793.35 on the Bombay Stock Exchange. Shares of Reliance, India's largest listed company by market value, slumped nearly 35% in 2011 on worries about declining oil and gas output at its east-coast block and due to uncertainty over using its massive cash pile of $14.8 billion.

Reliance hasn't been able to locate projects in its core energy sector to park funds and has been looking at opportunities elsewhere. During the past year it has announced partnerships to develop a business park, build a financial services unit, foray into homeland security systems, acquired stake in an education services firm, and expanded its footprints in the media business.

The company Friday said net profit for the third quarter through December dropped 14% to INR44.40 billion from INR51.36 billion a year earlier while sales rose 42% to INR851.35 billion.

The average of forecasts from 13 analysts was for a net profit of INR46.02 billion.

Profit fell as refining and petrochemical margins shrank and due to a fall in oil and gas production at its D6 block in the Krishna Godavari basin.

"The global nature of our businesses and weakness in economic conditions resulted in reduced earnings in the quarter, particularly in our refining and petrochemicals businesses," Chairman Mukesh Ambani said in a statement, adding that it will invest "prudently in future growth engines."

Reliance accounts for about a third of the country's refining capacity. Its Jamnagar refining complex in western India is the world's largest with a nameplate crude processing capacity of 1.24 million barrels a day.

The company earned $6.8 a barrel on converting a barrel of crude oil into products compared with $9 a year earlier. Analysts expect refining margins to soften in 2012 on slowing global demand growth and capacity additions.

Reliance has also been struggling to reverse a decline in natural-gas output at its D6 block. It sold a 30% stake in 21 blocks, including D6, to BP PLC for $7.2 to get technical expertise in exploration and production.

Gas output at the D6 block fell 22% to 436.40 billion cubic feet while crude oil production slumped 40% to 3.87 million barrels in the nine months to Dec. 31 due to reservoir complexity and a natural decline in reserves in the block. It didn't give quarterly output numbers.

- By Rakesh Sharma, Dow Jones Newswires; +91-11-4356-3334; rakesh.sharma@dowjones.com

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