Reliance Industries Q2 Results: Profit Decline and Flat Revenue

Reliance Industries Q2 Results: Profit Decline and Flat Revenue

Reliance Industries Limited, or RIL, on Tuesday reported that its net profit had declined by 4.7% to ₹16,563 crore from ₹17,346 crore during the same quarter of the last fiscal year. Revenues were almost the same at ₹2.35 lakh crore. The company performed well in respect of all diversified business segments, yet the company had low profits. This was primarily due to low refining margins and petrochemical prices because of lower oil prices. Let’s get into the earnings report and the performance of the diversified business segments of Reliance in detail.

Reliance Industries Q2 FY24 Results

Reliance Industries Q2 FY24 Financial Results

Financial Metric Q2 FY24
Revenue ₹2.35 lakh crore
Net Profit ₹16,563 crore
O2C EBITDA Decreased
Jio Platforms Revenue Increased
Retail Revenue Increased
Capital Expenditure Significant (5G, Green Energy)

Key Takeaways at a Glance:

Net Profit ₹16,563 Cr., down 4.7% YoY
Revenue ₹2.35 lakh Cr., almost flat
EBITDA: ₹41,982 Cr., up 2.3% YoY
O2C Business: Global headwinds account for subpar performance.
Consumer Businesses: Growth in Reliance Retail and Jio Platforms drives these business segments

Global Macroeconomic Conditions: The O2C core business of Reliance is sensitive to the global crude oil prices and refining margins. The global crude oil prices are lower in the quarter as compared to the previous quarter as well as year-over-year. This has been a direct impact on the O2C revenue for the quarter. General decline in earnings is also guided by subdued demand in petrochemicals.

Weak Refining Margins: Refining margins form a major constituent for firms like Reliance, which have a major market share in the energy space. In Q2 FY24, refining margins were substantially below the estimate. The company was able to take crude and create finished products such as gasoline, diesel, and jet fuel-the potential of it was limited by what it had to pay for them known as crack spreads, the difference between the price of crude and the price of its finished product, and that in turn adversely affects its profit margin of this business.

Reliance runs one of the largest refining complexes in the world located at Jamnagar, Gujarat. Since crude is such an important input, company revenues remain sensitive to the vagaries of global oil prices. In combination with lower demand for petroleum products, cruder crude prices cumulatively weighed in to bring a soft quarter to the core O2C business of the company.

O2C Business Under Pressure From All Sides

Through its Oil-to-Chemicals business, Reliance has traditionally generated most of its profits; refining, petrochemicals, and bulk fuels are significant components of O2C. Revenue for O2C business fell in Q2 FY24, with a global drop in the oil price, low refinery margins, and decreases in demand for petrochemical products.

Refining Business: The key drivers of refining margins for the quarter were mainly global demand and overcapacity. The margins decline further with volatile global geopolitical scenarios, leading to further uncertainty.

Petrochemicals: The petrochemicals business of Reliance Company has made a low-key performance as low demand and high capacity in the global markets led to it. There is an ongoing pricing pressure in the key markets, which forms a burden on the overall profitability.

Consumer Businesses: Resilient Growth

O2C business: Reliance Retail has not come under any pressure, and the growth story of Reliance’s retail arm has remained resilient. Reliance Retail is India’s largest retail chain. The business continues on its growth trajectory and contributes significantly to the overall revenue of the company. Growth segments of retail are showing strength on factors like higher footfalls, inducting new stores, and robust sales increase across categories like groceries, electronics, and fashion.

Revenue Growth: The retail business has been growing at a considerably higher YoY rate due to the fact it was driven by both increases in consumer spendings and expansion of the store network.
Key Drivers: The big positive here is that they’ve been investing quite heavily in both digital and physical footprints. Omnichannel retailing as an exercise has played a crucial role in pushing this brand into both urban and rural markets.
Strategic Initiatives: Reliance Retail is striving to fortify its FMCG and electronics businesses. These have been the biggest growth drivers for the company in subsequent quarters.

Jio Platforms: Growth in telecom and digital services business for Reliance remains evident into Q2 FY24. Jio remains the largest telecom player in India with a subscriber base over 350 million. Roll out of 5G services will also provide a strong fillip to revenue expansion in the near term.

Subs Additions: In the quarter, the company added crores of new subscribers. It shows high demand for digital services in India.
5G Roll-out: The company further rolls out 5G and aims to reach even more cities by the FY24 end. This will unlock new revenue streams through enterprise solutions, IoT services, etc.
Digital Services: It has launched various digital services to the bouquet, which range from entertainment, financial services, education, and health services and are very complementary to its telecom business. It has warranted higher customer engagement.

Financial Performance

O2C: While the segment faced a challenge, the company was still able to attain an EBITDA of ₹41,982 crore in the given period itself, with a 2.3 percent YoY. Great operational efficiency points towards such huge improvements in all non-O2C business, including consumer-facing ones like retail and telecom.

Net Profit: ₹16,563 crore. Compared to the previous year, this is down by 4.7%, mainly because of lower refining margins and lower crude prices.

Revenue: ₹2.35 lakh crore, almost flat, which would mean that there is a pinch to the energy business while the consumer businesses did well.

Strategic Outlook and Prospects to watch forward

So far, the strategic shift toward consumer businesses has been pretty high-paying. Both retail and telecom have performed quite well and are likely to continue being major growth drivers going forward. Of course, the focus on digital services, financial services, and the e-commerce platform JioMart will generate synergies and unlock additional revenue streams.

Reliance is moving very fast in its green energy transition. The idea behind this is that the company wants to pump in majorly into the renewable space. Solar and hydrogen stand out as options, and are two of them that look strongly under consideration. It gets the company in an excellent position toward a future wherein other markets would look in for sustainable energy.

Investment in Technology and Innovation: The company is investing further in the latest technologies like artificial intelligence, cloud computing, and block chain. Digital infrastructure developed using such investments is likely to continue fuelling long-term growth and unlock more opportunities than on its traditional lines of business.

Conclusion

Reliance Industries’ Q2 FY24 results depict both its sides that diversified the business portfolio of the company. While O2C remains in the headwinds of the global macroenvironment, consumer-facing businesses such as Reliance Retail and Jio will continue to pose robust growth prospects. The company’s structural shift toward digital and consumer businesses, as well as green energy investments, are well positioned for long-term growth; challenges in O2C are likely to continue as a drag on the near-term performance.

Greater thrust in innovation and sustainability along with an increase in its digital ecosystem will drive the business further into growth and entrench it among the country’s most valued companies.
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