Reliance Industries (RIL), India’s largest and most valuable company, faced a wider-than-expected drop in first-quarter profit due to challenges in its flagship oil-to-chemicals (O2C) business. The O2C segment, which remains the company’s main growth engine driving both profit and revenue, was negatively impacted by weak demand and a significant decline in refining margins.
In a statement, Reliance Industries attributed the drop in O2C demand to destocking driven by recessionary fears and high interest rates. Additionally, the ramp-up in China markets was slower than anticipated. The O2C business had experienced robust growth following the pandemic as demand for fuels increased. However, refining margins have now fallen from the record levels seen last year.
According to Refinitiv data, the profit from refining a barrel of crude oil in Asia plummeted about 41 percent to $3.44 a barrel during the April-June period. Fuel margins have also experienced a sharp decline of around 60-70 percent from the highs seen last year, Reliance Industries Chief Financial Officer V. Srikanth said in a post-earnings presentation.
Reliance Industries, led by billionaire Mukesh Ambani, reported consolidated profit of 160.11 billion rupees ($1.95 billion) in the quarter ending on June 30, down from 179.55 billion rupees in the same period the previous year.
The company’s revenue from operations fell 5.4 percent to 2.11 trillion rupees, primarily impacted by a 17.7 percent drop in sales in the oil-to-chemicals segment. This decline was driven by weak crude prices and lower price realization of downstream products.
Despite the challenges in the O2C business, the retail division saw a positive performance, with earnings before interest, taxes, depreciation, and amortization (EBITDA) rising by 33.9 percent during the quarter.
However, the telecom unit, Reliance Jio, reported its slowest profit and revenue growth in six quarters due to higher expenses and a lack of recent tariff hikes.
Investors are now eagerly awaiting the company’s annual general meeting for further details on the listing of Jio Financial Services (JFS), a demerged entity from Reliance, which is valued at approximately $20 billion.