RIL Q2: Net profit expected to drop, Jio ARPU under watch

Mukesh Ambani's Reliance Industries Ltd (RIL) is expected to face challenges in the second quarter, with analysts predicting a decline in net profit by 11-13% year-on-year (YoY). Despite some resilience in its consumer-facing sectors, the company’s core oil-to-chemicals (O2C) business is under pressure. 

This mixed performance could affect those looking at share market investment, as RIL remains a key player. Flat sales growth and weak refining margins are contributing factors to the drop in overall profits.

Weakness in the O2C segment impacting margins

RIL’s oil-to-chemicals business is expected to experience a downturn due to weak refining margins and lower production levels. Analysts at JM Financial project that Reliance’s net profit could drop by 11% YoY, bringing it to ₹15,518 crore, with sales marginally lower at ₹2,30,715 crore. A similar prediction by ICICI Securities pegs the profit at ₹15,400 crore, noting a 4% rise in sales to ₹2,40,500 crore.

Systematix Institutional Equities predicts a sharp 25.9% reduction in the O2C business's earnings. That is before interest, tax, depreciation, and amortisation (Ebitda), driven by weaker performance in refining and petrochemicals.

Consumer business to partially offset decline

The anticipated weak results in RIL's core segment are mitigated by strong performance in its consumer businesses. The telecommunications arm, Jio, is likely to benefit from recent tariff hikes, with analysts predicting a 4-5% increase in average revenue per user (ARPU), reaching ₹190.80. Emkay Global also noted that Jio’s revenue would likely remain steady due to these higher tariffs.

In the retail sector, RIL’s Ebitda is expected to rise by 7% YoY, aided by a 10% increase in retail space. This steady growth in consumer-facing businesses may help stabilise the company's overall financial results.

Key takeaways

• Reliance Industries' profit is expected to fall by 11-13% YoY, driven by weaker O2C performance.
• Sales are projected to remain flat, with estimates between ₹2,30,715 crore and ₹2,40,500 crore.
• Following recent tariff hikes, Jio's ARPU could rise 4-5%, boosting its earnings.
• The consumer business, including telecom and retail, is expected to perform well and offset some of the losses from the O2C segment.
• Reliance is also expected to announce a record date for its 1:1 bonus share issue with the quarterly results.

This quarter marks a significant test for Reliance, with weak performance in the O2C segment contrasting its growing consumer-facing ventures. Despite this, investors interested in share market investment may keep an eye on the company’s upcoming bonus issue.