RIL expects to maintain higher refining margins, eyes crude from Iran

By Promit Mukherjee and Devidutta Tripathy

MUMBAI (Reuters) - Reliance Industries(RELI.NS) expects to maintain high margins for its main oil refining business after strong demand pushed it to a seven-year high and helped it post a better-than-expected 39 percent profit rise in the December quarter.

The oil-to-telecoms conglomerate is also evaluating buying crude from Iran, its Chief Financial Officer V. Srikanth said, as the Islamic Republic re-opens for business after the lifting of international sanctions.

Reliance hopes that negotiations at this stage could lead to favourable terms for crude purchase from Iran, he said, but gave no details. Reliance and other Indian refiners had stopped imports from Iran due to sanctions.

Consolidated net profit at Reliance, India's second-largest company by market value, rose to a record 72.90 billion rupees ($1 billion) for the three months to Dec. 31 from 52.56 billion rupees a year earlier, it said in a statement on Tuesday.

Analysts on average had expected a profit of 70.33 billion rupees, according to Thomson Reuters data.

Reliance's gross refining margin (GRM), or profit earned on each barrel of crude processed - a key profitability gauge - was $11.5 per barrel for the December quarter, up from $7.3 a barrel a year earlier, it said.

The company, controlled by the country's richest man Mukesh Ambani, said the stronger refining margin in the December quarter was a result of robust demand growth and its ability to source crude oil more cheaply.

Srikanth said the GRM could be sustained at more than $10 per barrel, as demand for diesel was expected to remain high with the United States posting healthy car sales numbers. India and China will also remain big drivers of diesel, he said.

"I think that in general demand for refined products hasn't seen anything contrary that suggests that demand has shrunk ... there is no reason to not believe that we have shifted the base (GRM) number from where they used to be a few quarters back."

Crude oil refining accounts for more than 65 percent of the company's profit and 70 percent of revenue. The company runs the world's largest single location refinery at Jamnagar in western Gujarat state.

Reliance's revenue in the quarter was, however, dented by a drop in the prices of all refined oil products and nearly halving of sales in the U.S. shale gas business. The company said it would cut its investment in the shale gas unit to $500 million in 2016 from $900 million last year.

In the last few years, Reliance has also been expanding into and investing heavily in consumer-focused businesses such as online banking, retail, and telecoms to aid growth.

The telecoms unit, Reliance Jio Infocomm, is rolling out the country's biggest high-speed 4G network. The unit has so far invested more than 1 trillion rupees ($14.8 billion) including for payment of airwaves, executives said on Tuesday.

It had been due to launch around December, but analysts and industry executives now expect the services to be delayed until at least April. Reliance has previously said the year beginning on April 1 will be first full year of commercial operations.

($1 = 67.5957 Indian rupees)

(Reporting by Promit Mukherjee and Devidutta Tripathy; Writing by Sumeet Chatterjee; Editing by Anand Basu and Adrian Croft)