Reliance net profit drops 11 pc in Q1 on weak O2C business

Reliance Industries Ltd, India's most valuable company, on Friday reported an 11 per cent drop in its June quarter net profit on account of weakness in mainstay oil-to-chemical (O2C) business as well as higher finance and depreciation cost.

The oil-to-retail-to-telecom conglomerate's consolidated net profit was at Rs 16,011 crore, or Rs 23.66 per share, in April-June - the first quarter of the current 2023-24 fiscal year - compared with Rs 17,955 crore, or Rs 26.54 a share, earning a year back, according to a company's statement.

The net profit was also lower quarter-on-quarter when compared with record Rs 19,299 crore earnings in the preceding three months ended March 31.

After outlier record global cracks on diesel, petrol and jet fuel (ATF) in April-June 2022, margins have shrunk to near normal levels this year, hurting the earnings of refiners such as Reliance.

The firm helmed by billionaire Mukesh Ambani continued to post an uptick in consumer businesses of retail and telecom.

While higher subscriber addition, stable ARPU (average revenue per user) and more users converting to 5G boosted telecom segment earnings, the retail segment performed better than peers despite no demand trigger such as the festive season.

Finance cost jumped 46 per cent to Rs 5,837 crore due to higher interest rates and loan balance.

Depreciation/amortisation expenses were up 31.7 per cent to Rs 11,775 crore due to expanded asset base across all businesses and higher network utilisation in the digital services business.

Operationally, the company posted a 5 per cent growth in EBITDA or earnings before tax, at Rs 41,982 crore.

Revenue from operations fell to Rs 2.1 lakh crore from Rs 2.22 lakh crore in the year-ago period and Rs 2.16 lakh crore in January-March 2023.

This was primarily because crude oil prices fell 31 per cent.

The mainstay oil refining and petrochemicals business, called O2C, posted a 23.2 per cent fall in EBITDA to Rs 15,271 crore.

Rising demand, low inventories and oil market disruption centred around Russia's invasion of Ukraine pushed cracks -- the differential between a barrel of crude oil (raw material) and the petroleum products refined from it -- to record last year.

Diesel cracks in June last year soared to $74.95 a barrel while petrol cracks neared $42. Jet fuel cracks soared to $62. Diesel cracks in June this year hovered between $16 and $19 while petrol cracks were in the range of $10 to $14.

"Demand was impacted by destocking on recessionary fears and high-interest rates, as well as slower than expected ramp-up in China markets," the statement said adding exports fell 28 per cent.

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, Reliance Jio Infocomm Ltd - the digital services business - posted a 12.5 per cent rise in net profit to Rs 5,098  crore in Q1.

Also aiding the business was consumers migrating to its latest offering 5G services and IPL streaming bringing in bumper advertisement revenue.

Profits from retail business climbed 19 per cent to Rs 2,448 crore as store count rose to 18,446 from 18,040.

Oil and gas EBITDA soared 27 per cent to Rs 4,015 crore as gas production from KG-D6 block rose on hooking to the production of the deepest field.

"Block KG D6 is currently producing around 27 million standard cubic meters per day (up from 19 mmscmd in the previous quarter and is expected to reach 30 mmscmd in coming months," it said.

The company said its net debt stood at Rs 1.26 lakh 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 that cater to demand across industrial and consumer segments."

Jio's wide range of quality offerings at affordable price points has enabled strong growth in subscriber base, he said adding accelerated roll-out of Jio's 'True 5G' services is propelling the nation's digital transformation at an unprecedented pace.

Retail business delivered robust growth, with fast-paced store additions and steady growth in footfalls while O2C business delivered a resilient performance despite continuing global macro headwinds.

"Commencement of MJ field operations during the quarter will enhance India's energy security, with total production from KGD6 block rising to 30 mmscmd in the coming months," he said.

Ambani said the process of demerger of 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 foster financial inclusion in India," he added.