RIL Q2 Results Preview: Profit outlook brightens as O2C business set to drive growth

Mukesh Ambani-led Reliance Industries (RIL) is expected to report strong earnings growth for the September quarter, with brokerages forecasting a 15-17% year-on-year (YoY) increase in consolidated EBITDA, driven by a sharp recovery in its oil-to-chemicals (O2C) business. Strong refining margins, higher throughput and a weaker rupee are expected to offset subdued performance in retail and oil and gas operations.

The conglomerate will announce its second-quarter results on Friday, October 30, with investors closely tracking the profitability of its refining business, earnings growth at Jio Platforms and margin pressures in Reliance Retail.

Kotak Equities expects consolidated Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) to increase 15% YoY and 11.1% sequentially, supported primarily by a 47% jump in O2C earnings.


Nuvama has projected 17% YoY EBITDA growth, led by stronger-than-expected refining margins. Nomura, meanwhile, estimates consolidated EBITDA at Rs 52,000 crore, supported by improving refinery utilisation and steady telecom earnings.

The results will come just two days after Jio Platforms made its stock market debut following what is described as India’s largest initial public offering, adding another major development for Reliance shareholders.

O2C biz to drive earnings growth

The O2C business is expected to deliver the strongest growth among RIL’s major segments in the September quarter. Kotak expects O2C EBITDA to jump 47% YoY and 29% quarter-on-quarter (QoQ), benefiting from strong earnings at RIL’s special economic zone refinery, favourable currency movements and its US ethane-based petrochemical operations.

The brokerage expects the absence of a windfall tax impact on the SEZ refinery to provide additional support.

Nuvama estimates O2C EBITDA growth of 38% YoY, supported by a sharp expansion in middle-distillate refining margins.

According to Nuvama, gasoil and aviation turbine fuel refining cracks reached record levels during the quarter, supported by supply disruptions and limited exports from China.

The brokerage also expects higher refinery throughput, an additional ethane vessel and stable ethane prices to benefit earnings, although elevated freight costs could partially offset these gains.

Nomura has projected O2C EBITDA at Rs 20,300 crore, an increase of 19% sequentially. The brokerage estimates refinery throughput will recover to 20.9 million tonnes, up 16% from the June quarter, when operations were affected by a planned maintenance shutdown at one of RIL’s domestic refinery units.

While refining profitability is expected to strengthen, weaker petrochemical prices could limit the overall improvement.

Jio earnings seen growing steadily

RIL’s digital services business is expected to maintain healthy growth, supported by subscriber additions and a gradual improvement in average revenue per user (ARPU). Nomura estimates Jio Platforms' EBITDA at Rs 22,100 crore, up 4% sequentially.

The brokerage expects Jio's subscriber base to increase by 80 lakh to 54.1 crore, from 53.33 crore at the end of June. ARPU is projected to rise to Rs 219 per month from Rs 215.6 in the preceding quarter.

Nuvama expects digital services EBITDA to grow 16% YoY, making it another contributor to RIL’s overall earnings growth.

Jio's quarterly results will also mark its first earnings announcement following its October 28 stock market debut. The company's shares listed at Rs 1,358, a premium of 21.36% over its IPO price of Rs 1,119, and ended their first trading session at Rs 1,419, representing gains of nearly 27% over the issue price.

Retail biz may face margin pressure

Reliance Retail is expected to deliver relatively subdued earnings despite revenue growth. Kotak estimates retail revenue will increase 11.7% YoY, while EBITDA could decline 0.8% compared with the corresponding quarter last year. Sequentially, the brokerage expects retail EBITDA to improve 7.2%.

Nomura estimates retail revenue at Rs 85,600 crore, representing 8% YoY growth, and EBITDA at Rs 6,800 crore, broadly unchanged from a year earlier. Nuvama also expects retail EBITDA to decline around 1% YoY, citing a higher comparison base.

Investors will monitor retail margins, consumer demand, store additions and the performance of the company's digital commerce businesses.

Oil and gas business likely to remain weak

RIL’s upstream oil and gas business is expected to report a decline in profitability due to lower production volumes.

Kotak projects segment EBITDA to fall 7.2% YoY and 6.7% sequentially. Nuvama expects a 6% YoY decline, while Nomura estimates EBITDA at Rs 4,900 crore, down 1% from the June quarter.

The segment's weaker contribution is expected to be offset by improved earnings from refining and steady growth in digital services.

Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.