Reliance Industries: reliable rupee

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When Ben Bernanke muttered about tapering in May, he probably wasn’t hoping to make India’s richest man richer. But the ensuing capital flight from India weakened the rupee enough to boost earnings at Mukesh Ambani’s Reliance Industries in its first half, which ended in September. A jump in exports of the oil and gas group’s refined products helped net income pick up by almost a 10th from a year earlier to Rs108bn ($1.8bn), Reliance said on Monday. Despite Mr Bernanke’s help, Reliance has its troubles. Global overcapacity is weighing on refiners’ margins, and refining makes up the biggest slice of group profit.

Reliance’s gross refining margin fell to its lowest level in over a year in the past three months to $7.70 a barrel, hence earnings growth was weakest over that period. That Reliance owns the world’s largest refining complex means that operating efficiency does something to lessen the impact of falling gross refining margins. But the glut will worsen as Saudi Arabia and China continue to add capacity. Reliance’s petrochemical division offset refining somewhat. Polymer prices have increased, as the higher naphtha price is passed on. That provided some of the 26 per cent gain the chemical division’s pre-tax earnings saw in the first half. But the rupee’s 17 per cent slide against the dollar during that period probably made the biggest contribution. The rupee has gained more than a 10th so far in the second half.

Output also continues to fall at the group’s most important gasfields, while others are suffering from delays. Mr Ambani has also been pushing ahead with his quixotic ambitions for entering India’s fiercely competitive telecoms market – a poor use of Reliance’s cash. Sure, it now trades on a valuation of 12 times expected earnings, a slight discount to its five-year average. But Mr Ambani still needs more than a dovish Federal Reserve to get richer.

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