Billionaire Ambani’s Reliance Misses Estimates on Cheaper Crude, High Finance Costs

Reliance Industries Ltd., led by billionaire Mukesh Ambani, posted a lower-than-expected quarterly profit as the petrochemical margins dragged and finance costs jumped.

Author of the article:

Bloomberg News

P R Sanjai and Rakesh Sharma

Published Oct 27, 2023 • 3 minute read

The sales room of a Reliance Industries Ltd. gas station near the company’s oil refinery in Jamnagar, Gujarat, India, on Saturday, July 31, 2021. The Indian city of Jamnagar is a money-making machine for Asia’s richest man, Mukesh Ambani, processing crude oil into fuel, plastics and chemicals at the world’s biggest oil refining complex that can produce 1.4 million barrels of petroleum a day. Photo by Dhiraj Singh /Bloomberg

(Bloomberg) — Reliance Industries Ltd., led by billionaire Mukesh Ambani, posted a lower-than-expected quarterly profit as the petrochemical margins dragged and finance costs jumped.

Net income at India’s largest company by market value climbed 27% to 173.9 billion rupees ($2.1 billion) for the quarter through September compared with the same period last year, according to an exchange filing on Friday. That fell short of the average 178.51 billion rupees profit estimated by a Bloomberg survey of analysts.

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The Mumbai-based company reported a 1.3% rise in revenue to 2.35 trillion rupees, topping estimates. Total costs slipped 1.4% to 2.12 trillion rupees, but finance costs surged 26% “primarily due to higher interest rates and currency depreciation,” the company said in the filing.

“Weak global demand and supply-overhang continued to impact downstream margins,” Ambani said in a statement. The muted earnings point to the headwinds as Asia’s richest person expands Reliance’s existing businesses, such as 5G services in telecom, as well as pivots to newer ones such as green energy and financial services.

Key Insights

While strong festive shopping bolstered the Reliance’s retail operations, a 14% reduction in crude oil prices led to lower price realization for its refinery products reducing the revenue for oil-to-chemicals segment.Ambani is currently steering his energy-to-entertainment conglomerate through a leadership transition as well as rapid diversification into new sectors. His children — Akash, Isha and Anant — were appointed on Reliance’s board in August this year after overseeing the digital, retail and energy businesses respectively for the past couple of years.Jio Financial Services Ltd., the newly spun-off finance unit which was listed in August, saw quarterly profit doubling in its first set of earnings earlier this month. The upstart, which plans to offer a full suite of services including asset management, insurance and loans, may help Ambani disrupt the local finance sector much like he did with the retail, telecom and refining businesses. But it may not be that easy.Reliance Retail returned to fund-raising after three years and sold stakes worth almost $1.9 billion to Qatar Investment Authority, KKR & Co. and UAE’s ADIA since August, as investors bet on robust consumer demand in the world’s most-populous nation. The most-recent investment valued India’s largest retailer at pre-money equity value of 8.38 trillion rupees, Reliance said in an Oct. 6 filing. Reliance Retail is gearing up for an IPO but has not indicated a timeline.Reliance is also looking to beef up its entertainment heft. It is said to be close to buying Walt Disney Co.’s India operations in a multi-billion dollar deal after scooping up the streaming rights of the coveted Indian Premier League for $2.7 billion last yearFestive demand should boost Reliance’s consumer businesses in the December quarter. Refinery operations may take a hit as some units at its Jamnagar complex undergo a month-long planned shutdown that began in the last week of September.

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Market Reaction

Reliance’s shares rose almost 1% in the July-September quarter, lagging the 1.7% advance in the benchmark S&P BSE SensexEarnings were announced after the close of market hours

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Oil-to-chemicals revenue slipped 6.1% y/y to 1.5 trillion rupeesReliance Jio’s net income jumped 12% to 50.6 billion rupeesReliance Jio’s ARPU was at 181.7 rupees per subscriber per month on a total subscriber base of almost 460 million usersReliance Retail posted a quarterly profit of 27.9 billion rupees, up 21% y/yTotal debt was almost flat y/y at 2.96 trillion rupees while cash and cash equivalents fell 12% to 1.78 trillion rupees

—With assistance from Advait Palepu.

(Updates throughout with details and commentary.)

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