RIL Q2 results

RIL Shares Drop Over 1% Post Q2 Result: What’s Hurting the Sentiment?

1. Overview of RIL’s Performance

Reliance Industries Limited (RIL), India’s largest company by market value, reported a 5% decline in its net profit for the July-September 2024 quarter (Q2 FY25). The company’s net profit fell to ₹16,563 crore, down from ₹17,394 crore in the same period last year. Despite the decline, the result exceeded analysts’ expectations, which had anticipated a 10% fall in profit.

2. Reasons for Profit Decline

The drop in RIL’s profit was primarily driven by weaker performance in its oil-to-chemical (O2C) business. This business, which consists of RIL’s twin oil refineries in Jamnagar, Gujarat, and its petrochemical units, saw margins shrink due to global oversupply. China, refining cheap Russian crude oil, flooded the market with petroleum products, thereby depressing product margins.

In addition, global crude oil prices remained subdued, partly due to easing geopolitical tensions. Israeli Prime Minister Benjamin Netanyahu’s assurance to the U.S. that Israel would not target Iranian oil infrastructure further allayed fears of supply disruptions, leading to a 3% decline in crude oil prices.

3. Impact on Stock Price

The weaker performance of RIL’s core O2C business weighed on investor sentiment. As a result, RIL’s share price dropped by 1.15% on the Bombay Stock Exchange (BSE) on October 15, 2024, trading at ₹2,713.55. The decline in share price reflects concerns about the future profitability of the company’s O2C segment, given the global oversupply and soft crude oil prices.

4. Other Business Segments: Retail and Telecom

While the O2C business struggled, RIL’s other main segments, retail and telecom, posted steady performances. RIL’s telecom arm, Jio Platforms, reported a 23.4% year-on-year rise in its consolidated net profit to ₹6,539 crore for Q2 FY25. This was largely driven by an increase in the average revenue per user (ARPU), which surged to ₹195.1 per month. Similarly, the retail business contributed positively to the company’s overall performance.

5. Financial Highlights

• Net Profit: ₹16,563 crore (5% lower YoY)
• Earnings per Share (EPS): ₹24.48 (down from ₹25.71 a year earlier)
• Revenue: ₹2.35 lakh crore (slightly lower than the previous year)
• EBITDA: ₹43,934 crore (down 2%)
• Jio Platforms Net Profit: ₹6,539 crore (up 23.4% YoY)

Advantages and Disadvantages

Advantages:

1. Strong Retail and Telecom Performance: Both the retail and telecom arms of RIL showed positive performance. Jio Platforms’ net profit growth of 23.4% demonstrates the company’s success in the digital space.
2. Resilience in Revenue: Despite a challenging quarter, RIL’s overall revenue of ₹2.35 lakh crore remained stable and only marginally lower than last year.
3. Above Analyst Expectations: The 5% drop in net profit was better than expected, as analysts had predicted a 10% decline, which may temper the negative sentiment somewhat.

Disadvantages:

1. O2C Business Struggles: The oil-to-chemical business, a crucial revenue driver for RIL, saw its margins shrink due to global oversupply. This raises concerns about future profitability, especially in the energy sector.
2. Impact of Geopolitical Factors: The drop in global crude oil prices, exacerbated by geopolitical developments, has negatively impacted RIL’s O2C margins, contributing to the share price drop.
3. Investor Sentiment Impact: Despite better-than-expected results, RIL shares still saw a decline, indicating that investors remain cautious about the future performance of the O2C business.

Conclusion

RIL’s Q2 FY25 results reflect a mixed performance. The oil-to-chemical business, traditionally a core revenue generator, has faced challenges due to global oversupply and weaker crude oil prices. However, the company’s other business segments, particularly telecom and retail, have provided a cushion against the overall decline. While RIL’s performance exceeded expectations, concerns over its O2C segment’s future continue to weigh on investor sentiment, as reflected in the 1.15% drop in share price.

FAQs

1. Why did RIL’s share price drop after its Q2 results?

1. • RIL’s share price dropped because the company reported a 5% fall in net profit, primarily due to weaker margins in its oil-to-chemical business. Global oversupply and declining crude oil prices impacted the profitability of this segment.

2. How did the retail and telecom businesses perform?

1. • Both the retail and telecom businesses posted steady performances. Jio Platforms, RIL’s telecom division, reported a 23.4% increase in net profit for Q2 FY25, while the retail segment contributed positively as well.

3. What are the key challenges facing RIL’s oil-to-chemical business?

1. • The key challenge is the global oversupply of petroleum products, primarily driven by China refining cheap Russian crude oil. This has led to lower product margins and affected RIL’s O2C segment.

4. Did RIL’s financial results meet analyst expectations?

1. • Yes, despite a 5% drop in net profit, RIL’s results were better than analysts’ estimates, which had forecasted a 10% decline in net profit.

5. What is the outlook for RIL’s O2C business?

1. • The O2C business faces challenges due to global oversupply and weak crude oil prices. The outlook depends on how the market adjusts to the oversupply situation and any future changes in global crude oil demand.

RIL Q2 results

Jio Platforms Q2 Net Profit Surges 23.4% to ₹6,539 Crore Amid ARPU Boost