(Bloomberg) -- Reliance Industries Ltd., the oil-to-retail conglomerate owned by Asia’s richest man Mukesh Ambani, posted lower-than-expected quarterly profit due to a weak performance by its core petrochemicals and refining business.

Mumbai-based Reliance’s net income fell 11% to 160.1 billion rupees ($1.95 billion) for the quarter ended June 30 compared to the same period a year earlier, according to an exchange filing on Friday. That missed the average 183.02 billion rupee profit estimated by a Bloomberg survey of analysts. 

Revenue was down 5.8% to 2.1 trillion rupees, meeting estimates, while total costs dipped 4% to 1.9 trillion rupees.

Reliance’s processing of cheap discounted Russian barrels and retail margins on fuel products was offset by weak refining and petrochemical margins. Product cracks, or the profit margin between the refined products and crude oil, contracted sharply. Fuel cracks fell by 60%-70%, Chief Financial Officer V. Srikanth said at a briefing on Friday. Diesel cracks for the industry averaged $14.60 a barrel, down 65% from a year earlier, while gasoline cracks fell 53% to $14.50 per barrel, JP Morgan Chase & Co. analysts wrote earlier this month.

Ambani, the company’s billionaire owner, is in the midst of a green energy push as the oil-to-retail conglomerate builds four giga-factories to make solar modules, hydrogen electrolyzers, fuel cells and storage batteries. Ambani has also beefed up entertainment content on its streaming service platform to take on global giants like Walt Disney Co. and Netflix Inc. in the fast-growing Indian market.

Key Insights

  • Reliance Industries is expanding its existing businesses, including a 5G telecom network, green energy and consumer goods.
    • Morgan Stanley this month resumed coverage on Reliance with an overweight rating and expects earnings to grow at a 17% compound annual growth rate over the next two years, helped by a recovery in chemicals, telecom tariff hikes, as well as the monetization of retail investments and a rise in gas production
    • Reliance likely will continue to invest $17 billion annually, wrote analysts Mayank Maheshwari, Gaurav Rateria, Akash Mehta and Pranitha Shetty
  • JP Morgan analysts last month said they see strong consolidated earnings for Reliance in the current financial year on the back of growth in its refining and petrochemical arm as it benefits from that arbitrage
  • The conglomerate has commenced gas production from a new field in the deepwater block and unveiled a $12 internet-enabled phone to attract budget device users
  • A special trading session on Thursday has also valued its financial services arm Jio Financial Services Ltd. at about $20 billion
    • The financial services unit recommended his daughter Isha Ambani as a non-executive director of the board, underscoring the latest succession planning
  • Reliance has entered into a stringent licensing deal with Shein as Chinese-founded online fast-fashion giant is re-entering India market
  • Reliance earlier this month said its retail unit will buy back shares trading in the gray market and given to employees as stock options as the conglomerate mulls listing the holding company of Reliance Retail Ltd.
  • Reliance is also bolstering its over-the-top platform as the first edition of Major League Cricket, a US short-format T20 tournament, started broadcasting in India on JioCinema’s streaming platform and the Sports18 television channel
  • BofA Securities analysts wrote in a July note that the focus now turns to the potential key announcements around Jio Financial Services, green energy and digital businesses during the annual shareholder meet expected in August

Market Reaction

  • Reliance’s shares rose 9.4% in the June quarter
  • Earnings were announced after the close of market hours

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  • Reliance Jio’s net income during the quarter jumped 12% year-on-year to 48.6 billion rupees
    • Jio ARPU 180.50 rupees, estimate 180.56 rupees
  • Reliance Retail posted a quarterly EBITDA of 51.5 billion rupees, up 34%
  • Oil-to-chemicals EBITDA dropped 23% to 152.7 billion rupees
  • Finance cost during the quarter jumped 46% from last year, while depreciation increased about 32%: statement
  • Total debt stood at 3.19 trillion rupees on June 30, 21% higher than year earlier; cash and cash equivalents dipped 6.8% to 1.92 trillion rupees

(Updates with details throughout)

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