RIL’s Q3 Earnings Outlook: Navigating Sectoral Dynamics

Reliance Industries Limited (RIL) is anticipated to report a somewhat subdued third-quarter performance, marked by a potential sequential decline in net profit and modest revenue growth. Analysts suggest that while the refining segment faces challenges, the consumer business segments are likely to provide some respite.

Refining Margin Pressure

The oils-to-chemicals segment, a significant revenue contributor for RIL, is encountering headwinds primarily due to a decline in diesel cracks and the narrowing of Russian discounted crude differentials. Diesel cracks, a key indicator of refining margins, dropped to $20.3 per barrel in Q3 compared to $26.5 per barrel in the preceding quarter.

Factors Contributing to Earnings

Brokerages anticipate a dip in earnings before interest, tax, depreciation, and amortization (EBITDA) owing to a sharp decline in operating profit within the oils-to-chemicals business. Lower refining throughput due to maintenance shutdowns and ongoing weakness in petrochemical margins further compound the challenges in this segment.

Bright Spots: Exploration & Production (E&P) and Consumer Business

Despite challenges in refining, the E&P segment is expected to exhibit double-digit EBIDTA growth, supported by lower operational expenses and increased output from the KG D6 gas fields. Moreover, robust growth in digital and retail businesses, including the expansion of retail outlets and potential margin improvements in the telecom sector, offer optimism amid sectoral challenges.

Future Outlook and Street Expectations

Analysts anticipate significant developments in RIL’s financial landscape in the coming year, with a focus on debt management and the monetization of past investments. The startup of revenues from the new energy vertical is highlighted as a key factor that could positively impact RIL’s net asset value (NAV).

Growth Drivers and Potential Challenges

The street closely monitors sub-verticals within retail, including fashion and grocery, along with potential 5G monetization opportunities. Additionally, expectations of tariff hikes in the telecom sector and a decline in capital expenditure in Jio and Retail segments in the fiscal year 2025 are factors that could influence RIL’s free cash flow and overall financial performance.

Conclusion

Amid evolving sectoral dynamics and market conditions, RIL’s strategic initiatives in debt management, new energy ventures, and consumer business expansion are poised to shape its earnings trajectory in the foreseeable future.