Q3 results preview: Weak O2C biz likely to drag earnings for RIL again

Company's Ebitda may remain flat or decline marginally, say analysts

Reliance Industries Limited (RIL)’s core business is expected to once again drag earnings for the oil-to-telecom conglomerate in the third quarter of the current financial year (Q3FY25), said analysts.

 

Earnings estimates for the Mukesh Ambani-promoted entity are expected to either remain flat or decline marginally at the Ebitda level, compared to a year ago. Ebitda is earnings before interest, taxes, depreciation and amortisation.

 

RIL is slated to declare its financial results for Q3FY25 on January 16.  

 

In a Bloomberg poll, seven analysts estimated a consolidated revenue of Rs 2.37 trillion and six analysts foresaw a net income adjusted of Rs 18,940 crore for Q3FY25.

 

RIL operates three main business divisions — oil-to-chemicals (O2C), which comprises refining, fuel-retailing, and petrochemicals; and two consumer-facing businesses, namely retail and telecom.

 

In a January 7 report, analysts at Nuvama noted that earnings from Jio (telecom) and Retail are likely to aid a sequential improvement in RIL's consolidated Ebitda. However, in year-on-year (Y-o-Y) terms, “Ebitda is estimated to decline 1.5 per cent due to weak performance from the O2C,” the note said. 

 

Nuvama estimates a 10 per cent fall in Ebitda for the O2C business on the back of weak refining and soft petrochemicals, the report said.

 

In a Yes Securities report dated January 2, analysts said RIL’s “retail segment is anticipated to achieve and reach its record-high Ebitda of Q3FY24, benefiting from sustained expansion (higher private label sales) and strong consumer demand, thereby contributing to overall better profitability”.

 

Analysts with Morgan Stanley expressed a similar view, noting: “We expect Reliance's earnings and Ebitda to grow 4 per cent quarter-on-quarter (Q-o-Q) but flattish Y-o-Y as telecom tariff hikes and tightness in global fuel markets filter through in profitability.” The report added that RIL is rationalising its retail floor space, and the retail segment Ebitda should be flattish on a Y-o-Y basis.

 

In the July-September period (Q2FY25), RIL reported a 4.8 per cent Y-o-Y decline in its consolidated profit (attributable to the owners of the company) to Rs 16,563 crore. For Q3FY25, RIL’s profit after tax (PAT), as per Yes Securities, is expected to show marginal improvement of up to 3 per cent from a year ago. Others such as Nuvama and Morgan Stanley expect a 4.9 per cent Y-o-Y drop in PAT for the same period.

 

Analysts at Goldman Sachs expect the pressure on consolidated Ebitda to continue into the fourth quarter of the current financial year (Q4FY25).

 

In a January 9 report, Goldman Sachs analysts said: “Strong telecom earnings growth is expected to be offset by weakness in energy and more muted retail growth (in Q3FY25). These challenges are already well known as the management flagged that the streamlining/restructuring of operations will remain a drag on retail earnings through the fourth quarter as well.”