Reliance Industries has reported a robust first quarter performance aided by higher gross refining margins.

The company earned gross refining margins (GRMs) of $7.3 a barrel (bbl) in Q1 FY11, which is 50 cents higher y-o-y though 20 cents lower sequentially. However, the decline in RIL’s refining margins was not as severe as the fall in the Singapore GRM, which was down sequentially from a high of $5/bbl in March quarter to $3.7/bbl in June quarter. Analysts indicate that going forward RIL’s refining margins will move in tandem with the Singapore GRM and the difference between the two may not be more than $3/bbl.

The production from D6 basin stood at 304,349 tonne of crude (up 207%) and 5,376 mmscm of natural gas (up 210%). Export revenues more than doubled to Rs 32,685 crore this year. With 16.89 mn tonne of crude oil being refined, the utilisation rate was at 109% (average utilisation rates for refineries in North America is 84% and in Europe it is 75%).

However, in the next quarter, there won’t be any ramp-up in production from the D6 basin. RIL has also been indicating that gas production cannot go beyond 60 mmscmd in the immediate future and hence the company cannot supply gas to NTPC and Essar. Some boost to RIL’s numbers can come from the new findings in Panna-Mukta and Tapti basin (Q1 contributions 1,287 mmscm of gas and 403,394 tonne of crude).

Petrochemical revenues increased 18.8% y-o-y to Rs 13,903 crore with petrochem margins at 14.8% and refining margins at 4%. With production remaining flat at 4.9 mn tonne, the growth in revenues is due to higher price realisations. However, with capacities coming up in China and West Asia, petrochem product prices should come under pressure from the second half of this financial year.

The fall in propylene and ethylene production (13% and 16% respectively) due to cracker turnaround at Hazira and Nagothane facilities were compensated by a 7% increase in polymer production and 3% increase in polyester volumes. Its fibre Intermediate volumes will rise once the Patalganga facility starts production after the shutdown.

 RIL continues investing in Shale gas assets in the US, where it has a 40% interest, with net resource potential of 13.3 trillion cubic feet equivalent or tcfe. The quarter saw it venture into telecom (broadband wireless access auction).

While net sales increased 86.7% y-o-y to Rs 58,228 crore in Q1, raw material costs increased faster, which resulted in the operating profit margin falling 400 basis points to 16%.

The stock trades at around Rs 1040 levels (Wednesday 12:05pm) and trades under 10 times estimated FY11 earnings offering good long term opportunities.