Reliance Industries Ltd (RIL) recently disclosed a 9.3% YoY increase in its consolidated net profit for Q3 2023, displaying robust performance in its retail and telecom sectors. However, the spotlight falls on the oil-to-chemicals (O2C) division, which is expected to grapple with volatility and rangebound earnings, as noted by both company executives and analysts. Despite favorable refining margins, the downstream sector faces challenges, contributing to the uncertainty surrounding O2C earnings. This duality in performance underscores the diversified nature of RIL’s business, with resilience in some sectors offsetting weaknesses in others.

Oil-to-chemicals (O2C) Business

The O2C business, encompassing refining, petrochemicals, and fuel retailing, reported a marginal 1% YoY rise in Ebitda at ₹14,064 crore for Q3FY24. This muted growth was attributed to planned maintenance and inspection shutdowns, coupled with lower downstream chemical margins. Analysts at Emkay raised their O2C Ebitda estimates for FY24-26 by two-four per cent each, citing a more optimistic outlook for refining margins. However, they caution that the downstream chemical business’s weakness is anticipated to persist, emphasizing the ongoing challenges within this segment.

Looking ahead

RIL’s CFO, V Srikanth, remains cautiously optimistic, especially about refining margins due to sustained demand for products like jet fuel. He notes the expected firmness in gasoil cracks, driven by limited availability of heavy crude and the demand for jet fuel. Despite this positive outlook, the petrochemical sector faces hurdles, with weak demand from China and high feedstock prices contributing to downstream margin pressures. As the global market grapples with such challenges, domestic demand for petrochemicals is expected to receive a boost from upcoming general elections, according to analysts with Jefferies.

Read Further:

– Business Standard

Tags: Reliance Industries, O2C Division, Earnings, Refining Margins, Downstream Challenges, Petrochemicals, Global Market Trends, Demand-Supply Outlook, China, General Elections.