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Reliance Industries Ltd., India’s most valuable company, on Friday reported an 11 percent drop in its net profit for the June quarter due to weakness in its core oil-to-chemicals (O2C) business as well as higher financing and depreciation costs.
Combined net profit from Oil to Retail to Telecom was Rs 16,011 crore or Rs 23.66 per share in the April-June period – the first quarter of the current financial year 2023-24 – compared to Rs 17,955 crore or Rs 26.54 per share, according to company statement.
Net profit was also lower on a quarterly basis when compared to a record profit of Rs. 19,299 crore in the previous three months ended 31st March.
After record global cracks in diesel, gasoline and jet fuel (ATF) in April and June 2022, margins have narrowed to near-normal levels this year, hurting profits for refiners such as Reliance.
The company led by billionaire Mukesh Ambani continued to see an uptick in consumer businesses in retail and telecoms. While the addition of more subscribers, a stable ARPU (average revenue per user) and more users switching to 5G boosted telecoms earnings, the retail segment performed better than its peers despite not having a demand catalyst like the holiday season.
Finance cost jumped by 46 per cent to Rs. 5,837 crore due to higher interest rates and loan balance. Depreciation/amortization expense increased by 31.7% at Rs.11,775 crore due to expansion of the asset base across the business and increased network utilization in the digital services business.
Operationally, the company recorded a growth of 5 per cent in EBITDA or EBITDA, at Rs.41,982 crore.
Revenue from operations decreased to Rs.2.1 crore from Rs.2.22 crore in the period last year and to Rs.2.16 crore in January-March 2023. This was mainly due to the 31 per cent drop in crude oil prices.
The core oil refining and petrochemicals business, called O2C, posted a 23.2 per cent drop in EBITDA to Rs.15,271 crore.
Rising demand, declining inventories, and oil market turmoil, centered around Russia’s invasion of Ukraine, have sent cracks — the difference between a barrel of crude oil (a raw material) and the petroleum products refined from it — into last year’s record.
Diesel cracks rose in June last year to $74.95 per barrel while gasoline cracks approached $42. Jet fuel cracks rose to $62. Diesel cracks in June this year ranged from $16 to $19 while petroleum cracks were in the range of $10 to $14.
“Demand was affected by inventory drawdowns due to recession fears and higher interest rates, as well as a slower-than-expected increase in Chinese markets,” the statement said, adding that exports fell by 28 percent.
With the consumer base swelling to 448.5 million from 439.3 million at the end of March and ARPU rising to Rs 180.5 from Rs 178.8 crores, Reliance Jio Infocomm Ltd – the digital services company – recorded a 12.5 per cent rise in net profit to Rs 5,098 crore in the first quarter. The company has also been helped by the migration of consumers to its latest 5G services and IPL streaming, which has boosted advertising revenue.
Profits from retail increased by 19% to Rs. 2,448 crore as the number of stores increased to 18,446 from 18,040.
EBITDA for oil and gas increased by 27 per cent to Rs. 4,015 crore as gas production from the KG-D6 field increased as a result of the deeper field production tie-up.
It added, “Block KG D6 currently produces around 27 million standard cubic meters per day (up from 19 million standard cubic meters per day in the previous quarter) and is expected to reach 30 million standard cubic meters per day in the coming months.”
The company said its net debt was Rs.1.26 crore.
Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries Ltd, said: “Reliance’s strong operating and financial performance this quarter demonstrates the resilience of our diversified portfolio of businesses catering to demand across the industrial and consumer sectors.” Jio’s wide range of quality offerings at affordable prices has enabled strong growth in the subscriber base, he said, adding that the rapid expansion of Jio’s ‘True 5G’ services is driving the country’s digital transformation at an unprecedented pace.
The Retail business delivered strong growth, with fast-paced store additions and steady growth in footfall while the O2C business delivered a resilient performance despite continued global headwinds.
“The commencement of MJ field operations during the quarter will enhance India’s energy security as total production from the KGD6 block rises to 30 million cubic meters per day in the coming months,” he said.
Ambani said the process of spinning off the financial services business – Jio Financial Services Limited – is on track with key approvals in place.
“I firmly believe that Jio Financial Services is uniquely positioned to advance financial inclusion in India,” he added.
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