Reliance Industries eyes growth boost from O2C, retail and Jio businesses

ET Intelligence Group: Reliance Industries (RIL) reported strong double digit growth in revenue and profits for the September quarter, led by the oil-to-chemicals (O2C) segment. However, operating profitability (Ebitda margin) was under pressure due to factors such as investments in the digital commerce by its retail division, the shift in festive season to the December quarter (compared with the previous year where it was split between the second and third quarters), and the effects of rising inflation and a weaker rupee against the dollar that drove overall costs of inputs, packaging and transportation. In the coming quarters, strong refining margins are expected to support O2C earnings amid supply disruptions, low fuel inventories and RIL’s ability to source crude and feedstocks competitively. The retail business may provide a near-term lift depending on the trend in festive demand while investments in digital commerce are expected to translate into better earnings from FY28.

RIL’s consolidated revenue grew by 27.8% year-on-year to ₹3.6 lakh crore. Though Ebitda of ₹62,409 crore was the highest ever in any quarter so far, it rose at a slower pace of 23.9%, reflecting pressure on profitability due to the retail segment. The O2C business led the growth, with Ebitda surging 67.9% to ₹25,203 crore and accounting for nearly 40% of the group’s total Ebitda compared with 30% in the year-ago quarter.

The O2C business is benefitting from higher fuel cracks-the difference between the prices of crude oil and refined products-aided by global refinery outages, low product inventories and supply disruptions arising from geopolitical tensions. On a per barrel basis, gasoline cracks nearly tripled to $24.9l year-on-year in the September quarter, gasoil cracks rose 3.5 times to $65.8 and ATF cracks increasing 3.7 times to $59.3. RIL’s ability to diversify crude sourcing and redirect refined product exports across geographies should help it capture better realisations. During the quarter, it increased gasoline exports to East and South Africa.

The Retail division’s Ebitda declined 10.2% year-on-year to ₹6,120 crore in September quarter, with margins under pressure from digital commerce investments, higher input costs absorbed by the company and the shift in the festive calendar to December quarter. The management expects the full benefit of the festive season to reflect in the December quarter. However, elevated inflation and uneven rural demand due to weak monsoon may constrain discretionary consumption in the near term.

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Jio Platforms

Jio Platforms, which recently debuted on the bourses and represents RIL’s telecom and digital platforms business, reported double digit year-on-year revenue and net profit growth for the September quarter. It was aided by improved average revenue per user (Arpu) and steady traction in the subscriber additions and 5G adoption. Its customer base increased 7.1% year-on-year to 542.4 million while the proportion of 5G users increased to 55.3% from 46.3% a year ago. Arpu increased to ₹218.8 from ₹211.4 a year ago.

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The company continued to report growth in monthly data consumption per customer. Jio’s stock has gained 28% over its offer price of ₹1,119 in the three trading sessions after listing on October 28. This has raised its trailing P/E multiple to 42 from around 34 at the time of the IPO, narrowing the valuations gap with Bharti Airtel, which trades at a trailing P/E of 43. Jio Platforms is likely to sustain the growth momentum in the coming quarters, which should support the stock price.