Fuel glut drives this most profitable Indian refiner’s income down 39%

Stay-at-home orders across the world drove India’s most profitable oil refiner’s net income down 39%.

Stay-at-home orders have caused steep fall in demand for oil in the country. (File photo used for representational purpose only).
Stay-at-home orders have caused steep fall in demand for oil in the country. (File photo used for representational purpose only).

Reliance Industries Ltd.’s earnings slumped in the three months through March as lockdowns slammed oil prices and destroyed demand for fuels, hitting its mainstay refining business. The oil-to-chemicals business posted the biggest profit drop in nearly two decades, and prompted its chairman and Asia’s richest man, Mukesh Ambani, to forgo his pay and cut salaries of employees.

The industry’s woes may deepen. The historic collapse in the price of oil triggered by the coronavirus pandemic is devastating the energy industry with the biggest companies from China to the U.S. reporting big drops in profit and growing financial stress amid the worst global slump since the Great Depression. Asia’s biggest refiner Sinopec swung to a loss, while BP Plc reported a drop in profit and Exxon Mobil Corp. has frozen its dividend for the first time in 13 years.

Also check these Vehicles

Find more Cars
Indian Springfield (HT Auto photo)
₹ 30.87 - 33.50 Lakhs* *Expected Price
View Details
Indian Challenger (HT Auto photo)
₹ 39.99 Lakhs *Expected Price
View Details
Indian Vintage (HT Auto photo)
₹ 21.79 - 25.32 Lakhs* *Expected Price
View Details
Indian Chief (HT Auto photo)
₹ 21.30 Lakhs *Expected Price
View Details
Indian Chieftain (HT Auto photo)
₹ 32.01 Lakhs *Expected Price
View Details
Indian Scout (HT Auto photo)
₹ 13.60 Lakhs *Expected Price
View Details

Also Read : India’s oil revenue loss in lockdown seen exceeding $5 billion

The volatility in oil prices, which declined 73% during the quarter, and perishing demand eroded the value of the crude and oil products it keeps in stock, resulting in a rare inventory loss of 42.45 billion rupees, according to Reliance.

India’s biggest company by market value is known for its agility in oil trading that shields it against losses from price swings, which regularly impacts its state-run peers in India.

Earnings before interest and taxes at its petrochemicals business declined 43% to 45.53 billion rupees during the quarter. Reliance said the pandemic outbreak impacted its petrochemicals business as demand slowed, including for packaging.

“While RIL maintained near normal utilization at all major facilities, gradual resumption of economic activity in the coming months is expected to aid demand recovery for fuels and petrochemical products," it said.

Also Read : Refiners stare at 25,000 crore inventory loss: Crisil Ratings

Sustained weakness in its energy business will threaten valuations for a planned 20% stake sale to Saudi Arabian Oil Co. Reliance said Thursday that Aramco’s due diligence is on track and “both the parties are committed and actively engaged."

Shedding Debt

The deal is crucial for Ambani’s goal of cutting the company’s net debt to zero by early next year. Reliance in August valued its oil-to-chemicals division, which comprises of refining, petrochemicals and fuel marketing, at $75 billion including debt.

Consumer-facing businesses, where Reliance has plowed in billions of dollars, is partially shielding the company against the uncertainties and falling contribution from its oil refining and petrochemicals operations. The oil-to-chemicals business contributed 57% to the group’s operating income during the quarter, a sharp decline from more than 70% a year earlier.

Also Read : India's oil refineries scale back output as coronavirus chokes fuel demand

On Thursday, the company flagged plans to complete raising 1.04 trillion rupees by June, including a $5.7 billion investment by Facebook Inc. in its digital platform business and a $7.1 billion share sale to existing investors for the first time in about 30 years. That’s fuelling the company’s ambitions of shedding debt, with Joint Chief Financial Officer V. Srikanth saying Reliance will have zero net-debt ahead of its own deadline.

“Reliance is well positioned to navigate macro headwinds because of the robust and resilient business model with diversified earnings," Chief Financial Officer Alok Agarwal said during a video-conference after the earnings. “Technology and consumers are new investment themes."

First Published Date: 02 May 2020, 14:16 PM IST
Shopping Bag Shop Now
74% OFF
IDELLA Car Duster, Extendable Long Handle Microfiber Car Duster Exterior Scratch Free Car Cleaning Tool, Car Dust Brush for Truck, Pickup, SUV, RV, Motorcycle, Vehicles Cleaning,(Multicolor)
Rs. 238 Rs. 899
56% OFF
Microfiber Car Cleaning Soft Brush Ideal as Mop Duster, Washing Brush with Long Handle, Dust Cleaner Car Wash Brush with Handle, Soft Brush Scratch Free, Cleaning Dashboard Curved Design - Grey
Rs. 349 Rs. 799
1% OFF
GOODAIR Clear Car Windshield Enhancer | Classic |12 Tablets
Rs. 295 Rs. 299
51% OFF
AGARO Galaxy Cordless Tyre Inflator, Portable Air Compressor, Flash Light, Power Bank, Multipurpose Use, Rechargeable, Up to 150 PSI Air Pump for Car, Bike, Foot Balls, Inflatables, Black & Red
Rs. 2,199 Rs. 4,499

Please provide your details to get Personalized Offers on

Choose city
+91 | Choose city
Choose city
Choose city
Powered by: Acko Logo
Please be noted that any information provided herein above will be received by Acko General Insurance Limited (“Acko”). By mentioning the above information, you agree to provide these details and information to Acko.
By clicking "View Offers" you Agree to our Terms and Privacy Policy

Dear Name

Please verify your mobile number.

+91 | Choose city
Couldn't verify the OTP.
It's either expired or it's incorrect.