Weakness in key refining biz drags down RIL Q2 earnings

The Mukesh Ambani-led company also said it has decided to separate and list its financial services business to unlock value.

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RIL’s net profit fell to ₹13,656 crore in the quarter ended 30 September from ₹13,680 crore in the year-ago quarter, the company said in a statement. Earnings, however, beat the ₹13,427 crore profit estimated by a Bloomberg survey of analysts.

Overall revenue from operations rose 34% to ₹2.33 trillion from a year earlier, beating the ₹2.26 trillion estimated by Bloomberg. The company’s Ebitda (including the impact of the windfall tax costs of ₹4,039 crore) for the quarter rose 15% to ₹ 34,663 crore. The Bloomberg consensus estimates had pegged it at ₹30,335.5 crore.

Weakness in the cyclical oil to chemicals (O2C) business put pressure on overall performance, while the oil and gas exploration and production business partially mitigated the impact because of rising gas prices. The consumer-facing retail and telecom businesses, however, continued to impress.

The O2C segment’s earnings before interest, taxes, depreciation and amortization (Ebitda) for the September quarter declined by 5.9% to ₹11,968 crore from a year earlier. The introduction of special additional excise duty or windfall tax on transportation fuels and lower polymer prices are likely to have hurt earnings. Analysts at Jefferies India Pvt. Ltd had anticipated O2C Ebitda at ₹11,364.9 crore.

The segment Ebitda was also significantly lower than ₹19,888 crore seen in the June quarter. The global growth slowdown led to pressure on gross refining margins. The average benchmark Singapore GRM declined to $7.1/barrel in the September quarter from $21.4 per barrel in the three months ended 30 June.

The petrochemicals segment also remained under stress with a decline in key chemical margins. Polymer margins over naphtha declined from a year earlier due to a sharp fall in polymer prices (6-32%) led by lower demand from China and a volatile energy price environment, the company said. Segment revenues for the September quarter increased by 33% to ₹1.6 trillion, primarily on account of higher crude oil prices.

RIL also announced that it would demerge its financial services business and list it separately under Jio Financial Services Ltd to tap the growing demand for financial services from retail and small-business customers. Shareholders of RIL will receive one share of the demerged business for a share of RIL.

“Performance of O2C business reflects subdued demand and weak margin environment across downstream chemical products. Transportation fuel margins were better than last year but significantly lower sequentially. Segment performance was also impacted by the introduction of special additional excise duties during the quarter to ensure stable supply and lower volatility in the domestic market,” chairman Ambani said.

The oil and gas exploration and production segment, however, saw Ebitda nearly triple to ₹3,171 crore. The Ebitda margin grew 12.6 percentage points to 82.3% on rising gas prices. The segment’s revenue more than doubled to ₹3,853 crore, led by higher production and improved gas price realization.

Growth in the consumer-facing businesses of retail and telecom offset the weakness in the refining and chemicals businesses. Retail and telecom now contribute more than half of Reliance Industries’ Ebitda.

The retail business saw gross revenue for the September quarter rise 43% to ₹64,920 crore from a year ago and 10.9% sequentially. The company said the operating environment was similar to pre-covid levels. Across town classes, consumer sentiment remained positive on the back of key promotional events and the early onset of festivities. The company also expanded its physical store network with 795 new stores with an area of 9.2 million sq. ft, an increase of 20% from the preceding quarter, taking the total store count at the end of the quarter to 16,617, with an area of 54.5 million sq. ft, becoming only Indian retailer with more than 50 million sq. ft feet of retail space under operation.

The retail business posted a record Ebitda of ₹4,404 crore, up 51.2% from a year ago. Ebitda from operations increased 76% to ₹4,286 crore, with a 130 basis point margin improvement. This resulted from a favourable mix, positive operating leverage and operational efficiencies.

Jio Platforms Ltd reported margins at more than 50% for a fifth straight quarter.

“I am pleased with the record performance of our consumer businesses, which continue to scale new milestones every quarter. We saw consistent net subscriber additions and higher engagement in digital services. Retail business delivered record performance with a strong revival in footfall, store additions and digital integration. Reliance Retail continues to provide a compelling proposition of great shopping experience and superior value across consumption baskets and price points,” Ambani said.