Reliance tops estimates as petrochemicals business stands firm in a turbulent first quarter

Mumbai: Reliance Industries Ltd delivered a better-than-expected start to FY27 as a resilient oil refining and petrochemicals business weathered severe disruption in global energy markets triggered by the US-Iran conflict, more than offsetting weakness in its retail arm.

The earnings beat came despite expectations that geopolitical tensions and volatile energy markets would weigh on Reliance’s flagship oil-to-chemicals (O2C) business, which contributes more than half of the company’s consolidated revenue.

India’s most valuable company reported a consolidated profit of ₹20,946 crore attributable to owners in the first quarter, ahead of a consensus estimate of ₹19,823 crore of analysts polled by Bloomberg. This was a 12% increase over the same period last year, after accounting for a one-time gain of ₹8,924 crore made then by a stake sale in Asian Paints Ltd.

Reliance Industries reported a better-than-expected profit due to strong performance in its oil-to-chemicals (O2C) business, which significantly offset weakness in its retail arm, amidst geopolitical tensions and volatile energy markets.

The O2C segment performed well in Q1FY27, with revenues up nearly 30% year-on-year to ₹2 trillion, higher than analysts' expectations despite anticipated market turbulence.

Profit growth was mainly driven by strong performances in the O2C and digital services segments, which helped mitigate the impact of a 14% decline in retail profits.

Geopolitical tensions led to severe disruption in global energy markets, but Reliance managed to maintain strong operational performance, particularly in its petrochemicals business.

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“Reliance has made a steady start to FY27, with all businesses delivering strong operating performance,” Mukesh Ambani, the company’s chairperson and managing director said in a statement. “Our diverse business portfolio has once again demonstrated its resilience in a quarter which witnessed continuing geopolitical tensions and volatile commodity markets.”

The Mumbai-headquartered heavyweight’s consolidated topline for Q1 was higher by 25% year-on-year at ₹3.1 trillion. Earnings before interest, tax, depreciation and amortization (Ebitda) grew by a tenth to ₹47,517 crore, while Ebitda margin slipped by 201 basis points (bps) to 15.2%. A hundred bps equals 1%.

“The earnings are better than expectations due to strong O2C (oil to chemicals) performance. Retail was weaker than expected,” said Harshraj Aggarwal, executive vice president-institutional equity research at Yes Securities.

Analysts had pencilled in a weaker quarter for the O2C business because of turbulence in global energy markets, the introduction of the special additional excise duty (SAED), negative marketing margins, and possible inventory losses.

However, the business reported revenues higher by nearly a third to ₹2 trillion, and Ebitda higher by a sixth to ₹17,010 crore, albeit margins shrank 100 bps.

The segment benefited from both better fuel cracks and downstream margins, according to Aggarwal. Cracks refer to the difference between the cost of crude oil and the price of refined products, with higher cracks implying better margins for refiners.

“The O2C business delivered strong performance during the quarter, supported by all-time high middle distillate cracks and improved downstream petrochemical deltas,” Ambani said.