Reliance Industries, the Indian conglomerate controlled by billionaire chairman Mukesh Ambani, reported flat profit in its fiscal second quarter as export taxes on refined fuels and weak refining margins hit its key oil-to-chemicals (O2C) business.
The Mumbai-based company, however, was still able to beat profit estimates as its telecoms and retail units posted a strong performance during the period.
Net profit attributable to owners of the company marginally declined by 0.2 per cent to 136.56 billion rupees ($1.65bn), in the three months ending September 30, compared with to 136.8bn rupees a year earlier, the Mumbai-based company said in a statement.
That surpassed the average profit projections of 134.27bn rupees, according to a Bloomberg survey of analysts.
For the first half of 2022, profit surged about 22 per cent to 316.1bn rupees against 259.5bn compared to the same period in 2021.
Revenue from operations in the second quarter jumped by more than a third year-on-year to 2.32 trillion rupees from 1.74tn rupees. For the six months ended June 30, revenue surged about 43 per cent to 4.56tn rupees from 3.19tn rupees from a year ago.
"Performance of our O2C business reflects subdued demand and a weak margin environment across downstream chemical products. Transportation fuel margins were better than last year but significantly lower sequentially," said Mr Ambani, the world's 11th-wealthiest person as of Saturday, according to the Bloomberg Billionaires Index.
"Segment performance was also impacted by the introduction of special additional excise duties during the quarter to ensure stable supply and lower volatility in the domestic market."
Reliance's financial performance is seen as a barometer for the Indian economy.
Beating projections in the second quarter is a vote of confidence for South Asia's largest economy which, much like other nations, is facing growing concerns about a global recession and stubbornly high inflation, both of which can hurt consumer demand.
Reliance's major O2C business was hit by the Indian government's decision to impose windfall tax on the exports of petrol, diesel and aviation fuels in the second quarter, which the company said cost it 40.4bn rupees.
Earnings before interest, taxes, depreciation and amortisation in the unit declined 5.9 per cent annually to 119.7 rupees, its first drop in six quarters. Revenue, however leapt about a third to almost 1.6tn rupees, helped by higher oil prices in the global market.
The price of Brent, the benchmark for two thirds of the world's oil, spiked in 2022, mainly because of Russia's military offensive in Ukraine and its spillover effects, and is up about 17 per cent year-to-date.
Reliance's retail arm set records in the second quarter, helped by an operating environment "at par with pre-Covid levels as the impact of the pandemic waned", the company said.
Net profit for the three-month period jumped 36 per cent annually to 230.5bn, while revenue surged almost 43 per cent to a record of 649bn rupees from a year earlier.
"Our retail business delivered record performance with strong revival in footfalls, store additions and digital integration," Mr Ambani said.
Footfalls across Reliance's establishments surpassed 180 million in the quarter, which marked growth of 23 per cent over the pre-Covid period, the company said.
Jio Platforms, Reliance's telecoms unit, added more subscribers in the third quarter to bring its user base to about 427.6 million at the end of September.
Net profit in the second quarter climbed 27 per cent year-on-year to 47.3bn rupees, while revenue increased about 23 per cent annually to 285bn rupees.
"We saw consistent net subscriber additions and higher engagement in the digital services segment," Mr Ambani said.
Separately, Reliance said it will form a new financial services unit and restructure its engineering and projects arms as it aims to boost profit margins, while preparing to carry out mega infrastructure projects, including the release of an ambitious 5G network in India.
The new division, Jio Financial Services, will be spun off and listed in India, the company said in a Friday filing to the Bombay Stock Exchange, where its shares trade.
Jio Financial “will be a technology-led business, delivering financial products digitally by leveraging the nationwide omnichannel presence of Reliance’s consumer businesses", Mr Ambani said.
This week, Jio announced it had selected Finland's Nokia as a major 5G equipment supplier as it prepares to expand its next-generation wireless services.
For its other restructuring plan, Reliance said it will separate the engineering and infrastructure divisions of its Reliance Projects and Property Management Services and combine them with the parent company.
Reliance shares ended the week down 1.22 per cent at the close of trading in Mumbai on Friday.