RIL investors wait for oil-to-chemicals business profitability to bottom out
Subscribe to enjoy similar stories. Reliance Industries Ltd’s (RIL's) shares hit an all-time high of ₹3,217.6 on 8 July but have fallen almost 16% since then. One problem has been weakness in the oil-to-chemicals (O2C) business, where Ebitda fell 19% year-on-year in the first half of FY25 and 24% year-on-year in the September quarter.
Despite the drop in profit, if the proportionate Ebitda of each business is considered, O2C remains the highest Ebitda contributor at ₹12,403 crore for Q2FY25 as the company has a 100% stake in the business. Still, the significance of the segment is masked as the consumer businesses, such as retail and telecom, command a higher multiple in RIL’s sum-of-the-parts valuation. Also read: HCL Tech’s rich valuation clouds re-rating prospects What’s worth considering is whether the O2C business has bottomed out hitting an at least six-quarter low.
While the sequential fall in Ebitda moderated to about 5% in Q2FY25, the base for year-on-year comparison for the second half of FY25 is high, which could cause growth to appear tepid in the next couple of quarters. However, the company believes that the Chinese government’s stimulus offers hope of better profitability in the segment. It remains to be seen if the sharp decline in refining margin – led by almost 50% lower year-on-year transportation fuel product spreads and low margins in downstream petrochemicals – finds a floor.
If further downside in O2C can be curbed, the upside from telecom tariff hikes could have a meaningful impact on overall Ebitda. The average revenue per user (ARPU) of ₹195 in Q2FY25 versus ₹182 in Q1FY25 does not fully capture the recent tariff hike as longer-term recharges are yet to be renewed at higher prices. It’s likely
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