Reliance Industries Limited (RIL) reported a 14.3 percent decline in EBITDA (earnings before interest, taxes, depreciation, and amortization) for its oil-to-chemical (O2C) business in the first quarter, amounting to Rs 13,093 crore. However, the company's oil and gas segment posted robust numbers, showcasing strong performance for the quarter.
This decrease in O2C was primarily due to lower fuel sales, weak global demand, and increased competition from new refineries entering the market. But the segment's revenue increased 18.1 percent Y-o-Y to Rs 157,133 crore, driven by both higher prices for their products and increased sales volumes.
Profit margins for refining gasoline decreased 30 percent, due to globally weak demand environment and ramp-up of new refineries in Middle East and West Africa, according to the company statement.
"Overall, energy market volatility is something that we have been seeing for various set of reasons. However, we do think that the structural business dynamics remains constructive,” Chief Financial Officer Srikanth Venkatachari said in a post-earnings call on July 19.
He further flagged that geopolitical issues coupled with high shipping costs and reduced exports led to an oversupply of gasoline in Asia, causing a sharp decline in profit margins for refining gasoline.
However, the conglomerate said that efficient sourcing and operations helped support O2C profitability, helping it navigate the tough margin environment.
"In O2C, margins declined in some products but was partially offset by the fact that we continue to benefit from advantageous ethane vs naphtha cracks and strong domestic demand," Venkatachari added.
The profit margins for polymers (like polyethylene, polypropylene, and PVC) fell by 1 percent to 17 percent compared to the previous year due to firm naphtha prices, a key raw material used to produce these polymers, according to the company. Naptha prices were up 16 per cent in the quarter, according to Venkatachari.
The company also noted a 15 percent Y-O-Y decline in the Polyester chain due to lower margin of key inputs in polyester production, such as PX (paraxylene), PTA (purified terephthalic acid), and MEG (monoethylene glycol).
PTA margins were negatively affected by excess inventory with producers in China and increased competition.
These sharp declines in the O2C earnings dragged down the overall performance of the conglomerate in the quarter, but its oil and gas business posted a solid earnings in the quarter.
Oil and gas business
RIL’s oil and gas business posted a robust performance with revenue growing 33.4 percent in the quarter at Rs 6,179 crore. The higher revenue was mainly on account of higher volumes, partly offset by lower price realisation from KG D6 and coal bed methane (CBM) fields, the company said in a press release.
EBITDA of the oil and gas business rose to Rs 5,210 crore, while the EBITDA margin stood at 84.3 percent. A 44 percent boost in production from the KG D6 field partly offset the impact of lower price realizations. The average production at KGD6 was reported at 28.7 MMSCMD of gas and approximately 21,640 barrels per day of condensate.
The average price realised for KG D6 gas was $9.27/MMBTU in the quarter under review, as compared to $10.81/MMBTU in the same period last year. The average price realised for CBM gas was $11.59/MMBTU in Q1, lower than $14.15/MMBTU last year.
On overall demand, CFO Srikanth Venkatachari said, “Global oil demand is expected to stabilise at 1 million barrel per day this year after strong growth in 2023.”
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