B2C shine makes up for the cloud over O2C at Reliance Industries

Reliance Industries' consumer-facing verticals, such as retailing and telecom, demonstrated sustained revenue momentum in the June quarter to make up 40% of aggregate sales, cushioning the profitability impact at India's most-valued conglomerate that had a stellar year-ago quarter due to record refining margins at its traditional oil-to-chemicals (O2C) businesses.

The biggest growth driver in the June quarter was the retail business, which clocked revenue of about ₹70,000 crore and was able to record more than 19% growth for the second three-month period in a row. The operating profit of the retail business climbed to 7.4% in June 2023 - the highest ever - even though Reliance opened 555 new stores, taking the total tally to 18,446 outlets.

Reliance Retail's contribution climbed to 27% of total revenue - one of the highest ever. Furthermore, at the aggregate level, the projected earnings point to an upcycle soon. No wonder the stock, India's most valued, has started outperforming the broader index in the past three months.


More phone subscribers and footfalls at the retailing outlets more than mitigated the inevitable earnings pressure on the more cyclical O2C segment, where profitability is tied to regional refining margin benchmarks that are now about a fifth of where they were a year ago.

Singapore Region GRM
To be sure, the O2C segment has been under pressure after the Singapore gross refining margin - a regional benchmark of refineries' profitability - fell nearly $4.2 in just three months to $4.1 per barrel in the June 2023 quarter, as realisation on sales of petroleum products such gasoline and diesel shrank. In the same quarter last fiscal, the same gauge was at a multiyear high of $20.93 per barrel. In the petrochemical segment, destocking and lower growth in China kept a lid on product pricing.

Hence, the operating profit of the O2C segment fell 23%, while delivering a margin of 11.48%. At the aggregate level, net profit shrinkage was limited to 6%. However, lower scheduled refinery capacity addition globally and an improving macro condition toward the latter half of the year should boost the performance of the O2C segment. In addition, the cost of ethane has corrected 20% on a year-to-date basis. Ethane accounts for nearly half the feedstock for petrochemicals.

Telecom Business
Separately, Reliance Jio added 9.2 million subscribers in the three months to June - the highest in four quarters, taking the total tally to 448.5 million subscribers. India's largest telecom operator has been able to expand its average revenue per user (ARPU) by 2.8% YoY to ₹180.5 owing to a better subscriber mix and ramp-up of the wireline business. Subscriber additions for Jio could further benefit from the Jio Bharat phone as it would help to target 250 million subscriber transition from 2G to 4G.

With capex intensity easing and multiple businesses close to monetisation, investor interest in Reliance is likely to sustain. The company spent ₹39,645 crore on capex in the June quarter, compared with ₹44,413 crore in the March quarter.