Reliance Industries Ltd (RIL), led by Mukesh Ambani, has long been a market leader in its major sectors. However, the company's profits have fallen for three consecutive quarters.
The conglomerate's profit declined 5% year on year (YoY) in the previous September and June quarters of fiscal 2025, while the bottom line dipped 2% YoY in the fourth quarter of fiscal 24.
During this time, the staple oil-to-chemicals company saw poor operating performance due to global headwinds and weakness in the downstream chemical segment. For example, in Q2FY25, operating profit fell 12% YoY, following a 14% YoY drop in the previous quarter.
The retail business's performance has also been uneven, particularly in the prior quarter, due to lower demand in the fashion and lifestyle area and a strategic focus on reducing operations.
As a result, the company's digital division did the majority of the heavy lifting over the last three quarters, offsetting weaknesses in other critical sectors.
The decline in its core earnings coincided with a bad performance on the stock market. RIL stock is dropped roughly 20% in the last six months.
The stock price decline has resulted in multi-year low valuations and a slew of buy ratings from top brokerages. Target pricing for the shares have risen to Rs 1,690.
But, before that, a quick look at the third-quarter predictions suggests that the downward profit trend will most likely occur in Q3, since most experts anticipate a profit increase of up to 6%. The average projection from approximately 6 brokerages is a 2% YoY increase in the bottom line.
The sequential recovery in O2C business and increase in refining margins, as well as contributions from Jio and retail sectors, will be closely monitored in the earnings report.
"Reliance is likely to see a sharp increase in its O2C segment's earnings sequentially with an estimated $2.1 per bbl QoQ improvement in GRMs (gross refining margins), partly offset by muted petrochemical spreads," according to ICICI Securities.
Key things to watch in RIL's Q3 earnings
Recovery in the O2C business
Most analysts anticipate a sequential improvement in the O2C industry, with EBITDA expected to climb 2% QoQ due to a recovery in refinery margins. Petrochemical margins, on the other hand, are unlikely to improve.
Jio is anticipated to drive profitability again
Jio's EBITDA is likely to expand in the mid-single digits quarter on quarter, driven by a healthy increase in ARPU to Rs 204 as the rate hike passes through to their ARPU.
Weakness in retail
According to three brokerages, retail operating profit is expected to expand by only 1%, owing mostly to reduced realisations countering an estimated 10% increase in retail space and EBITDA margin expansion.
