Reliance Industries Q2 FY25 Preview: Telecom Boost to Drive EBITDA Growth Amid Weaker O2C Performance

Reliance Industries (RIL) is poised to announce its Q2 FY25 earnings on October 14, 2024, with a mixed outlook for performance across its business segments. Key takeaways include:

1. EBITDA Growth Driven by Telecom: RIL’s overall EBITDA is expected to increase, largely due to the strong performance of Reliance Jio. The telecom segment is forecasted to benefit from tariff hikes and higher ARPU (average revenue per user). Brokerages anticipate a 6-9% quarter-on-quarter (QoQ) rise in Jio’s EBITDA, driven by the price increases and marginal subscriber growth. ARPU is expected to increase to around ₹194 per month, contributing significantly to overall earnings.
2. Weakness in the Oil-to-Chemical (O2C) Business: The O2C segment, historically a major contributor to RIL’s earnings, is likely to face challenges in Q2. Lower refining margins and weaker petrochemical spreads are expected to drive a 3-9% QoQ drop in O2C EBITDA. Gross refining margins (GRMs) are projected to decline to around $7.2 per barrel, compared to $19 per barrel in the same period last year, reflecting the difficult global refining environment.
3. Modest Retail Segment Growth: Despite challenges like store rationalization and the impact of a heavy monsoon, RIL’s retail business is expected to show resilience. Retail EBITDA is forecasted to grow by 0.6-1% QoQ, supported by steady consumer demand. The segment’s stable performance should help balance some of the weakness seen in the O2C business.
4. Softer Upstream Business: The upstream oil and gas business is expected to see a slight dip in performance, with a 1% QoQ decline in EBITDA due to higher operating costs and reduced production. Additionally, a higher profit petroleum share to the government is likely to weigh on margins.
5. Stock Price Movement: RIL shares, trading around ₹2,742.20, have declined over 6% in the past month, influenced by global market volatility and foreign investor outflows. Investors will closely watch the earnings report, focusing on the telecom segment’s ARPU growth, retail performance, and how much the O2C business is impacted by lower refining margins.
6. Overall Financial Projections: Analysts expect RIL’s consolidated revenue for Q2 to be around ₹2.31 lakh crore, with net profit expected to decline by 12% to ₹15,354 crore compared to the previous quarter. The O2C segment’s weakness will weigh on results, but the growth in telecom and retail is likely to cushion the impact, leading to a marginal rise in EBITDA.

In summary, while RIL’s oil-to-chemical business faces significant headwinds, its telecom and retail operations are expected to deliver stable growth, helping to mitigate the overall earnings decline.