Refining gains, clean energy push lift Reliance outlook despite retail drag

ET Intelligence Group: A strong performance by the energy division helped Reliance Industries (RIL) offset weakness in retail and Jio BP segments in the June quarter. The refining margins are expected to benefit from elevated product cracks as geopolitical conflicts continue to disrupt global fuel supplies. However, the benefit of stronger refining margins may not fully reflect in profitability due to elevated crude procurement costs including higher freight and insurance expenses, and logistics challenges.

Operational flexibility will be key for the company in navigating volatile global energy markets. The retail segment margin is expected to remain under pressure given higher investments in quick commerce platform. The telecom segment is likely to continue reporting volume led growth in the absence of tariff increases.

International product cracks expanded sharply during the quarter. Crack spreads represent the gross margin or the difference between crude oil prices and refined products. The spread on petrol rose to $26 from $10 in the previous quarter, while that on gasoil and aviation turbine fuel (ATF) surged around $60 and $62 from $16 and $14 respectively. Global product cracks are likely to remain strong given the Russian supply disruptions.


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The company aims to keep its refineries operating at peak utilisation through diversified crude sourcing, said company officials in earnings call. It also plans to leverage its integrated oil-to-chemicals platform to shift production towards higher-margin petrochemicals whenever economics are favourable.

Its upstream business is entering a fresh investment cycle aimed at arresting the decline in production. The company will begin initial exploration activity in the KG Basin with a new drilling rig arriving next month, followed by a multi-year, multi-well drilling programme to replenish reserves and sustain output.

In the clean energy segment, integrated solar module and solar cell production reached one gigawatt (GW) of annual capacity at the Jamnagar Green Energy Giga Complex. Its battery manufacturing programme remains on schedule, with the first 40 GWh facility expected to be commissioned this year. In the retail business, the operating margin before depreciation and amortisation (Ebitda margin) fell to a 15 quarter low amid the company's focus on aggressive rollout of dark stores over the next 9-12 months.

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The margin is likely to remain in the 6-7% band given the company's plan to deepen its presence across more markets.

According to Equirus Capital, the stock trades below historical valuations. "The stock trades at 18-19 times forward P/E and 10 times enterprise value (EV)/Ebitda compared with the historical forward average of 21 and 12 respectively," the broker mentioned in a report. It has retained a 'LONG' rating on the stock with a September 2027 target price of ₹1,537 citing comfortable valuations & improving earnings momentum. On Friday, the stock closed 2.6% higher at ₹1,326.5 from the previous close on the BSE.