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India’s Reliance Posts Weak Profits On Underperforming Refining Segment

India’s largest energy company, Reliance Industries (NSE: RELIANCE), has posted lower-than-expected Q2 2023 profits after its petrochemicals and refining businesses underperformed. The oil-to-retail conglomerate owned by Asia’s richest man Mukesh Ambani saw net income fall 11% Y/Y to 160.1 billion rupees ($1.95 billion), well below the average 183.02 billion rupee profit estimated by a Bloomberg survey of analysts. Revenue was down 5.8% to 2.1 trillion rupees, in-line with Wall Street estimates, while costs dipped 4% to 1.9 trillion rupees.

Three years ago, Reliance Industries briefly overtook its American peer, ExxonMobil Corp. (NYSE:XOM), to become the world’s most valuable independent energy company. RIL’s energy business accounts for ~80% of the company’s revenue. However, investors have chosen to focus on Chairman Mukesh Ambani’s plan to grow the company’s digital and retail arms. Reliance’s big bet in non-energy businesses such as telecom, retail, and digital services has helped it to vastly expand its revenue base.

Ambani’s dealmaking prowess has succeeded in luring investments from some of  tech’s heavy hitters, including Facebook Inc. (NASDAQ:FB) and Alphabet Inc. (NASDAQ:GOOG). Google agreed to invest Rs 33,737 crore ($4.5 billion) for a 7.7 percent stake in Jio Platforms, a digital services company and a subsidiary of RIL. Google also unveiled the ‘Google for India Digitization Fund’ wherein it plans to invest Rs 75,000 crores rupees (about $10 billion) to accelerate India’s digital transformation. The company has said that its $4.5B investment in Jio is going to be the largest from the fund.

RIL announced that Jio has developed a Made-in-India 5G solution and has teamed up with Google to develop entry-level 4G, or even 5G smartphones. According to Ambani, India has a population of 350 million people who currently use a 2G feature phone who would be willing to upgrade to an affordable smartphone. Once its 5G solution is proven at scale in India, Jio plans to start exporting it to other telcos globally.

RIL shares are flat in the year-to-date to give the company a market cap of 17.17 trillion

INR ($209.3B) compared with a -2.2% return by Exxon to give the American company a valuation of $410.8B.

By Alex Kimani for Oilprice.com

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