Squeezed between an upsurge in naphtha prices and a substantial decline in polymer prices, Reliance Industries Ltd (RIL) registered a 14.3 percent year-on-year (yoy) slump in earnings from its ‘oil to chemicals (O2C)’ business during the April-June 2024 quarter. The decline translates into a drastic 3.2 percent fall in profit (Earnings Before Interest, Tax, Depreciation, and Amortisation or EBITDA) margins during the first (April-June 2024) quarter of the financial year (FY) 2024-25.
However, the company’s total revenue from the O2C segment jumped by a staggering 18.1 percent to Rs 157,133 crore during the first quarter of the current financial year, compared to Rs 133,031 crore in the corresponding quarter of the previous year. Total exports from this segment of RIL’s business rose by 3.6 percent to Rs 71,463 crore from Rs 69,006 crore in the same period of last year.
Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, RIL stated, “The deep integration and flexibility built into our O2C business model helped mitigate the impact of a challenging operating environment. The business was impacted by lower fuel cracks with tepid global demand and ramp-up of new refineries. The oil and gas segment continued its growth trajectory with higher production, offsetting lower year-on-year gas price realizations.”
Total throughput of the company from the O2C segment rose by a marginal 0.5 percent to 19.8 million metric tonnes during the April-June 2024 as against 19.7 million tonnes registered in the comparative quarter last year. Total production meant for sale of the company’s O2C business stood at 17.7 million metric tonnes in the quarter under consideration, an increase by 2.9 percent from 17.2 million metric tonnes in the same period of the previous year.
| Reliance Industries’ oil to chemicals (O2C) business (Rs crore) |
| Particulars | April-July 2024 | April-July 2023 | Variations (%) | FY 2022-March 2023 |
| Revenue | 157,133 | 133,031 | 18.1 | 564,749 |
| Exports | 71,463 | 69,006 | 3.60 | 299,629 |
| EBITDA | 13,093 | 15,286 | (-)14.3 | 62,389 |
| EBITDA margin (%) | 8.3 | 11.5 | (-)3.2 | 11.0 |
| Depreciation | 2,407 | 2,090 | 15.2 | 8,776 |
Sources: Reliance Industries Ltd, and Polymerupdate Research; EBITDA = Earnings Before Interest, Tax, Debt, and Amortisation
Crude oil arbitrageRIL clarified that despite the tough margin environment, efficient sourcing and operations helped support O2C profitability. During the quarter, crude oil basket cost was minimized through increase in sourcing from cost-effective sources, thus maximizing the benefit of arbitrage opportunity. Also, refinery throughput of primary and major secondary units was maximized to optimise netbacks. During the quarter under consideration, gasoline grade-mix optimized to maximize netback with improved octane premiums, and domestic fuel sale maximized with improved demand. The company further stated that petrochemical production was maximized during the April-June 2024 quarter while margins were partially supported by year-on-year (yoy) lower ethane prices. Additionally, fuel cost was minimized by optimal utilisation of gasifier operation at higher throughput.
In the April-June 2024 quarter, global oil demand increased by 0.7 million barrels per day (bpd) yoy to 102.9 million bpd, with major contribution coming in from Asia. Jet/kerosene segment of the company posted a strong yoy demand growth of 0.6 million bpd while gasoline demand grew by 0.3 million bpd yoy. Diesel demand fell by 0.2 million bpd yoy.
Dated Brent averaged at US$84.97 a barrel in the April-June 2024 quarter, up by US$6.92 a barrel yoy from the same quarter of the previous year. Crude oil benchmarks rose yoy due to continuing production cuts by the Organisation of Petroleum Exporting Countries (OPEC) and allies (OPEC+), rising geopolitical tensions in the Middle east, and attacks on vessels in the Red Sea. Global refinery throughput also stood higher by 0.3 million bpd yoy at 81.6 million bpd in the April-June 2024 quarter. Domestic demand for high speed diesel (HSD), MS, and aviation turbine fuel (ATF) increased by 1.6 percent, 7.1 percent, and 11.4 percent, respectively, over the same quarter last year. On yoy basis, April-June 2024 quarter domestic polymer and polyester demand increased by 8 percent and 5 percent, respectively.
Polymers marginsPolymer margins were down by 1-17 percent yoy due to firm naphtha prices. Polyethylene (PE) margin over naphtha was lower at US$330 a tonne during April-June 2024 quarter as against US$397 a tonne in the same quarter of the previous year. The business margins from polypropylene (PP) over naphtha was lower at US$318 a tonne during April-June 2024 quarter as against US$381 a tonne. Polyvinyl chloride (PVC) margin over naphtha and EDC was marginally lower at US$371 a tonne in the April-June 2024 quarter as against US$373 a tonne in the comparable quarter of the previous year.
According to the RIL sources, Singapore naphtha price stood at US$655 a tonne, up by 16 percent yoy. EDC price decreased by 6 percent yoy amidst improved availability in the global market. The United States ethane price was at 19.2 cpg, down by 9 percent yoy in line with lower US gas prices. During the quarter, polymer domestic demand increased by 8 percent yoy. PE, PP and PVC demand increased by 2 percent, 9 percent, and 20 percent, respectively, majorly driven by continuing focus on government schemes for agriculture and infrastructure.
Growth in consumer durables, automotive and packaging sectors also contributed to the incremental demand. RIL leveraged its ability to optimise feedstock mix to improve margins. The company retained its leadership in the domestic polymer market by leveraging a resilient supply chain network and delivering exceptional customer service, ensuring optimal product placement.
Consolidated business performanceRIL reported a 4.4 percent contraction in its consolidated net profit at Rs 23,234 crore for the quarter ended June 30, 2024, compared to Rs 24,294 crore registered in the corresponding quarter of the previous year. A major reason for the decline in the company’s net profit can be attributed to the decline in outstanding debt which currently exists at Rs 304,937 crore as on June 30, 2024, compared to Rs 318,685 crore recorded in the same period of the previous year.
“Consolidated EBITDA for the quarter improved from a year ago with strong contributions from consumer and upstream businesses offsetting the weak O2C operating environment. Reliance’s resilient operating and financial performance in this quarter underscores the strength of its diverse portfolio of businesses. Importantly, these businesses are contributing significantly to India’s growth, providing vital energy and vibrant channels for digital and physical distribution of goods and services,” he added.
By the end of June 2024, RIL possessed a total cash and cash equivalent worth Rs 192,596 crore, almost flat from Rs 192,064 crore reported by the end of the comparable period last year. Gross revenue of RIL rose by 11.5 percent to Rs 257,23 crore in the April-June quarter of the financial year 2024-25 (April-March) from Rs 231,132 crore registered in the same period of the previous year. While consolidated EBITDA of RIL jumped by 2 percent, EBITDA margins lumped by 1.5 percent.
Ambani further commented, “Reliance has made significant progress on the implementation of New Energy Giga-factories. On completion, these projects will provide India a world-class, integrated green energy ecosystem which can propel the next leg of sustainable growth.”
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
