Reliance Misses Profit Estimate On Poor Show By Energy Units

Reliance Industries Ltd., controlled by billionaire Mukesh Ambani, reported profit that again missed analysts’ estimates, as weak margins from its core oil refining business outweighed the benefits trickling in from higher telecom tariffs.

Net income at India’s largest company by market value slipped 4.8% to Rs 16,560 crore ($2 billion) for the quarter ended Sept. 30 compared with the same period last year, according to an exchange filing Monday. That fell short of the Rs 18,814 crore average of analyst estimates compiled by Bloomberg, making this the sixth straight quarter of earnings miss.

The refining-to-retail conglomerate reported a revenue to Rs 2.35 lakh crore, meeting estimates. Total costs climbed 1.4% to Rs 2.15 lakh crore, the filing said. Other income surged 27% to Rs 4,880 crore.

“Our performance reflects robust growth in digital services and upstream business,” Ambani said in a statement. “This helped partially offset weak contribution from oil-to-chemicals business which was impacted by unfavorable global demand-supply dynamics.”

Key Insights

• The oils-to-chemicals business, which contributes the most to Reliance’s cash flows, has been a drag on profit for the five preceding quarters as well. “Fuel cracks declined by nearly 50% year-on-year,” the company said in the statement, adding that chemical margins also fell “with muted global demand in a well-supplied market.”

  • Margins in this have been squeezed from weaker downstream demand as well as increased supply from China and South Korea, Vivien Zheng, a Bloomberg Intelligence analyst said in an Oct. 14 note.

  • The business should see an improvement in margins by mid-2025 after the global refining capacity addition is absorbed with the markets tightening through 2027, Morgan Stanley said in an Oct. 8 note.

• For now, overall profitability was supported by Reliance Jio Infocomm Ltd., which had raised prices on some of its mobile offerings starting July. The “full” impact of the tariff hike will flow through in the coming two to three quarters, the company said in the statement.

  • Such robust performance will help India’s top wireless carrier as it looks to go public, with Jefferies seeing the probability for the company to list in 2025 at a valuation in excess of $100 billion.

• Consumer demand in India has taken a hit amid concerns over inflation. This has added headwinds for Reliance Retail, which cut more than 38,000 jobs in the fiscal year ended March 31 amid slowing revenue and profit growth in recent quarters.

  • Reliance Retail’s September quarterly revenue slipped a bit, outlining the challenges for a business that Ambani said in August expects to double its revenue in the next three to four years. It plans to re-launch Chinese fast fashion brand Shein to India.

  • While growth was impacted by weak fashion and lifestyle demand, Reliance Retail Chief Financial officer Dinesh Taluja told reporters in a post-earnings call that the first two weeks of October have seen “very strong growth” as India’s festival season kicks in.

• While the company also aims to develop affordable artificial-intelligence products as part of its tech focus, Bloomberg Intelligence senior credit analyst Mary Ellen Olson sees renewable energy as an area for increased investments. Reliance aims to spend $10 billion by 2030 in this sector.

• Reliance’s media business also got a boost in August when it secured the local antitrust regulator’s nod for the merger of its operations with Walt Disney Co.’s India unit, paving the way for the creation of an $8.5 billion behemoth.

Market Reaction

• Reliance’s shares declined as much as 1.2% on Tuesday, compared to a 0.23% gain in the benchmark NSE Nifty 50 index. The company, whose stock has advanced 5.8% this year, had its 12-month share price estimate lowered at Citigroup Inc. and Jefferies, among others after the profit miss

• Earnings were announced after the close of market hours Monday.

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• Reliance Jio’s net income jumped 23% to Rs 6,230 crore

• Reliance Jio’s subscriber base fell 2.2% q/q to 478.8 million as of September 30

• Reliance Jio’s average-revenue-per-user rose 7.4% to Rs 195.1

• Oil-to-chemicals Ebitda -23.7% y/y

• Reliance Retail quarterly profit was at Rs 28.4 lakh crore, up 1.3% y/y

• Total debt, as of Sept. 30, stood at Rs 3.4 lakh crore, up 10% q/q

• Cash and cash equivalents rose 14% to Rs 2.2 lakh crore

• 2Q capital expenditure $4.1 billion