Mukesh Ambani's Reliance Industries may get some comfort from Jio and Reliance Retail as profits from petrochemicals may slip

• Refining margins have been muted last few months due to the fall in demand for oil products.
• Oil product demand growth stalled to nearly zero and there is oversupply of gasoline and naphtha, Morgan Stanley said.
• Petrochemicals are the biggest contributor to Reliance Industries' turnover and profits.
• However, the increasing traction for its telecom vertical Jio as well as the retail business may provide some relief.

Refining margins have been muted last few months due to the fall in demand for oil products. And that is bad news for Reliance Industries, which will announce its quarterly earnings on Friday, where petrochemicals is the biggest contributor to the company's revenue and profit.

However, the increasing traction for its telecom vertical Jio as well as the retail business may provide some relief to Chairman Mukesh Ambani, who has often said in the recent past that "data is the new oil".

Oil product demand growth stalled to nearly zero and there is oversupply of gasoline and naphtha, Morgan Stanley said in a report on July 10.

According to research firm CGSCIMB, margins from petrochemicals have dropped sharply since April 2019 and the decline has been sharpest in paraxylene, which has flowed through across the polyester chain. That would mean the decline in profit would be pronounced in Reliance mainstay business, the report added.

However, Jio and Reliance Retail may come to the rescue, at least partially.


The fear of slump in one of the important business segment has weighed on Reliance's share price in recent months. Even on Thursday (July 18), a day before the company declares the quarterly earnings, the stock of Reliance Industries fell over a percent, that's a loss of over a billion dollars in investor wealth.


While Jio may be the rising star in Reliance Industries portfolio spanning from oil and gas exploration to petrochemicals to retail, the telecom venture brings its share of anxiety to the investor's mind-- debt. The company's total debt has increased over 58% in the last two years largely due to the investments made in Jio as well as the cash burnt in winning over the millions of customers.

"RIL reported that its consolidated effective net debt reduced by ₹990 billion at end-FY19 due to a demerger of its telecom assets to an special purpose vehicle (SPV). However, the expected financing of the SPV by an Infrastructure Investment Trust (InvIT), which would bring in new investors, is yet to materialise," the CGS CIMB report said.


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