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October jinx looms over Reliance

Mumbai, Oct. 25: The October jinx has come back to haunt Reliance Industries (RIL).

India’s largest private sector company, which only last week posted numbers that easily beat the estimates on Dalal Street, may not repeat this feat in the current quarter as the fire at the Jamnagar refinery could take its toll.

In the same month last year, a partial shutdown of the refinery saw RIL’s net profit plunging 15 per cent to Rs 1,776 crore for the period ended December 31, 2005 against Rs 2,091 crore in the corresponding period last year. It was for the first time in 10 quarters that the refining and petrochemicals giant witnessed a dip in its bottomline.

RIL had then explained that the fall in profits came on account of a maintenance shutdown during October and November. The shutdown resulted in 6.70 million tonnes of crude being processed compared with 7.95 mt processed earlier. Refining margins declined to $9.1 per barrel.

Analysts feel that though RIL may not see a fall in its profits for the current quarter, the fire at one of the secondary processing units (VGO Hydrotreater-II) could bring in a more cautious outlook regarding its financials for the current quarter. This comes after the company reported a 9.18 per cent rise in net profit for the second quarter of this year to Rs 2,709 crore on account of a strong performance from its petrochemical division.

Observers are waiting for greater clarity from the company on the extent of damage from the fire and whether production from the refinery will be hurt. Many feel that today's development will have a deep impact on the company's operations. While initial estimates say that losses to RIL could range between Rs 80 crore and Rs 150 crore, analysts add that RIL’s ability to export environmentally friendly petroleum products may also be affected.

“The Jamnagar refinery of RIL used to export a large quantity of petrol and diesel. As there has been a fire in the VGO Hydrotreater unit, which removes sulphur from heavy feedstock to make higher-quality fuels, RIL's ability to produce and export higher quality of petroleum products will be affected to that extent. Such products also earn good returns,” said an analyst.

Another option available to RIL while exporting such high-quality fuel is to use sweet crude oil. However, this feedstock comes at an expensive price. Such an event could crimp RIL's gross refining margins further.

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