India's Reliance To Invest $12B In Petrochemicals After Fuel Demand Decline Hits Margins

Close on the heels of revealing the sharpest decline in quarterly profits, Indian refinery giant Reliance Industries said it will spend $8 billion to expand petrochemical production capacity.

India's largest private business enterprise, whose bottomline was hit by lackluster fuel demand in Europe and elsewhere, said it will expand its petrochemicals business to tap domestic demand for primary materials used in fiber and plastic industries, Bloomberg reported. The Mumbai-based oil and refinery giant will also invest another 4 billion in a petcoke gasification project which will produce syngas (synthetic gas), which is cheaper than LNG, to power its refineries and petrochemical factories in western India.

After markets closed Friday, Reliance released its fourth quarter results which showed a net profit of $815 million, a 21 percent plunge in quarterly profits year-on-year. It was also 5 percent less than the third quarter net profit. Reliance, which is valued at $46 billion, said profits declined mainly because of the lower-than-expected earnings from its oil and gas segment.

The company, which has $13.8 billion cash in hand as on March end, aims to use the cash reserve to reverse a 29 percent slump in its stock in the past year.

Reliance, which bets on India's economic growth and the rise in demand for petrochemical products, said it will focus on strengthening core oil and gas business. It seeks to optimize the output while trying to exploit the rising and steady demand in the petrochemical segment.

According to the company, the Indian demand for raw materials in fiber and plastic industry exceeds supply.

And, analysts say the strategy is promising. The spending plan brings a lot of clarity on the use of their cash. The strategy of building capacity in chemical and refining to meet Indian demand offsets the fall in gas production Niraj Mansingka, a Mumbai-based analyst at Edelweiss Capital Ltd, told Bloomberg.

Reliance has been diversifying into multiple verticals in the past years. In January, it invested in India's TV18 media group, and had already ventured into the retail segment. It is widely expected to launch broadband services using fourth-generation (4G) technology later this year.

Reliance shares gained 1.0.5 percent to reach 739.30 rupees at 2.07 pm in Mumbai trading.