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.
Mukesh Ambani’s Reliance Jio may go public next year as debt for discounts starts to bite and 5G era beckons
Mukesh Ambani may now have a reason to buy Anil Ambani's bankrupt RCom, say reports
Anil Ambani may not be a billionaire anymore — here's how he lost it all in just a decade
Popular on BI
- Zee Entertainment shares fall 3% in today’s trade as Invesco insists the board to hold EGM before Sony deal
- Here’s how the partnership between Stagwell and Enormous will benefit both organizations
- Google Pixel 6, Pixel 6 Pro to share the same primary, ultra wide cameras: Report
- OnePlus blames voltage fluctuation after a user reports Nord 2 charger explosion
- Paras Defence and Space Technologies IPO allotment is tomorrow, IPO was subscribed 304 times