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(Bloomberg) — Reliance Industries Ltd., controlled by billionaire Mukesh Ambani, reported profit that again missed analysts’ estimates, as weak margins from its core oil refining business outweighed the benefits trickling in from higher telecom tariffs.

Net income at India’s largest company by market value slipped 4.8% to 165.6 billion rupees ($2 billion) for the quarter ended Sept. 30 compared with the same period last year, according to an exchange filing Monday. That fell short of the 188.14 billion rupees average of analyst estimates compiled by Bloomberg, making it the sixth quarter the company has missed the brokerages’ forecast.

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The refining-to-retail conglomerate reported a revenue to 2.35 trillion rupees, meeting estimates. Total costs climbed 1.4% to 2.15 trillion rupees, the filing said. Other income surged 27% to 48.8 billion rupees.

“Our performance reflects robust growth in digital services and upstream business,” Ambani said in a statement. “This helped partially offset weak contribution from oil-to-chemicals business which was impacted by unfavorable global demand-supply dynamics.”

Key Insights

• The oils-to-chemicals business, which contributes the most to Reliance’s cash flows, has been a drag on profit for the five preceding quarters as well. “Fuel cracks declined by nearly 50% year-on-year,” the company said in the statement, adding that downstream chemical margins also fell “with muted global demand in a well-supplied market.”
  • Margins in the oil-to-chemicals division have been squeezed from weaker downstream demand as well as increased supply from China and South Korea, Vivien Zheng, a Bloomberg Intelligence analyst said in an Oct. 14 note.
  • The business should see an improvement in margins by mid-2025 after the new refining capacity addition globally is absorbed with the markets tightening through 2027, Morgan Stanley said in an Oct. 8 note.
• For now, overall profitability was supported by Reliance Jio Infocomm Ltd., which contributed more to earnings as a result of raising prices on some of its mobile offerings starting July. The “full” impact of the tariff hike will flow through in the coming two-three quarters, the company said in the statement.
  • That performance should help India’s top wireless carrier as it looks to go public, with Jefferies seeing the probability for the company to list at a valuation in excess of $100 billion.
• Consumer demand in India has taken a hit amid concerns over inflation and unseasonable weather. That’s added to headwinds for Reliance Retail, which cut more than 38,000 jobs in the fiscal year ended March 31 amid slowing revenue and profit growth in recent quarters.
  • Reliance Retail’s quarterly revenue has slipped a bit, outlining the challenges for a business that Ambani told shareholders in August would likely double its revenue in the next three to four years. The consumer unit plans to re-introduce Chinese fast fashion brand Shein to India.
  • Growth was impacted by weak fashion and lifestyle demand, Reliance said in the statement
• While the company also aims to develop affordable artificial-intelligence products as part of its tech focus, Bloomberg Intelligence senior credit analyst Mary Ellen Olson sees renewable energy as an area for increased investments, given Reliance targets to spend $10 billion by 2030 in that space
• Reliance’s media business also got a boost in August when it secured the local antitrust regulator’s nod for the merger of its operations with Walt Disney Co.’s India unit, paving the way for the creation of an $8.5 billion behemoth

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Market Reaction

• Reliance’s shares declined little over 5% during the quarter ended Sept. 30, compared to a 6.7% gain in the benchmark BSE Sensex index. The stock has advanced 6.2% this year
• Earnings were announced after the close of market hours

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• Reliance Jio’s net income jumped 23% to 62.3 billion rupees
• Reliance Jio’s subscriber base fell 2.2% q/q to 478.8 million as of September 30
• Reliance Jio’s average-revenue-per-user rose 7.4% to 195.1 rupees
• Oil-to-chemicals EBITDA -23.7% y/y
• Reliance Retail quarterly profit was at 28.4 billion rupees, up 1.3% y/y
• Total debt, as of Sept. 30, stood at 3.4 trillion rupees, up 10% q/q
• Cash and cash equivalents rose 14% to 2.2 trillion rupees
• 2Q capital expenditure $4.1 billion

—With assistance from P R Sanjai.

(Updates with details throughout.)

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