Reliance Industries’ consumer businesses cushions the conglomerate’s overall numbers

In the first quarter of financial year 2023-24 (Q1FY24), Reliance Industries Limited’s (RIL’s) net profit dropped, though analysts are not too concerned. The consolidated financials comprise businesses such as O2C (oil-to-chemicals), telecommunications and retail. 

Kranthi Bathini, equity strategist at WealthMills Securities, points to the increase in interest costs on account of debt taking off. “Money has been raised with the objective of taking advantage of the capex cycle. That coupled with low crude prices, which has impacted gross refining margins, has resulted in net profit dropping,” he says. The retail and telecom businesses have seen higher growth numbers. “In the case of telecom, there has been no price increase. The company is now focussed on the fibre and 5G segments.” 

A big development, in the recent past, has been the announcement on the demerger of Jio Financial Services, which saw the RIL stock taking off. A report put out by Emkay Global on RIL after the Q1 numbers says, “Due to the recent stock run-up (with the JFS demerger) and range bound business outlook, we downgrade RIL to hold. We are constructive on earnings growth; any positive trigger with respect to further vertical monetisation, new energy and Jio tariff hikes could rerate the stock.” 

Jio Financial is an attempt to strengthen the conglomerate’s presence in the B2C businesses, where it has already seen significant successes. Understandably, the listing of telecom and retail is being anticipated. Market tracker Ambareesh Baliga, says the decision to buy out Reliance retail’s non-promoter shareholders is an indication of potentially demerging the business. “The next step will be to list it, as also the telecom business.” 

The growth story of these businesses has also helped in reducing the dependence on O2C apart from mitigating any pressure on revenue and profit with the first quarter of FY24 being an example of that. “The sharp decline in the O2C segment (with a 31 per cent drop in crude oil prices) was offset by continued growth in consumer business and increase in volumes from O2C and the oil and gas businesses,” states a Motilal Oswal report. Over the next few years, the renewable energy foray will see a huge outgo. Baliga says revenues from there will not kick in before FY28, though one needs to see action on the ground. Meanwhile, the RIL stock on Monday was down by around 1.5 per cent.  

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