Speaking to ET Now, Yogesh Patil from Dolat Capital offered insights into the ongoing margin pressures and the outlook for Reliance’s core businesses.
Refining Margins Remain Fluid
Opening the discussion, ET Now raised concerns about the persistent volatility in refining margins and whether a structural floor has been reached for Reliance’s O2C EBITDA.Responding to this, Patil said, “First of all, I just wanted to give you a perspective on FY23, when we saw the special additional excise duties (SAED), which were not applicable for the SEZ refinery. The management has reiterated that only the DTA refinery will get impacted because of SAED duties on diesel, ATF, and gasoline.”
He added that the SEZ refinery is likely to continue outperforming, which could support overall gross refining margins (GRM). “Looking into Q1 FY27, we believe that the SEZ refinery will continue to have better margins, which will boost Reliance GRM in the coming quarters. We have seen similar conditions in FY23, where there was a kind of YoY growth in O2C EBITDA over FY22,” he explained.
Why Reliance Isn’t Capturing Global Upside
Despite global expansion in crack spreads, Reliance has not fully captured the upside. Addressing this, Patil highlighted multiple cost pressures.“The company has highlighted three major issues — crude premiums, which were around $40 per barrel and have now settled at about $19 per barrel for Saudi OSP. Secondly, insurance costs have gone up three to four times. On top of that, transportation costs have increased,” he said.
He emphasized that these real-world costs significantly distort theoretical margins. “What we see on screen — $110 or $120 per barrel — does not reflect reality. Physical barrels come with an additional $30–40 per barrel cost. This impacts real cracks, not theoretical cracks,” Patil noted.
While volatility peaked in March, he believes conditions are stabilizing. “Things have settled a little — not completely recovered, but more stable. Refiners are now better positioned to manage sourcing strategies after this volatile period,” he added.
Crude Sourcing Strategy: A Key Variable
Reliance’s diversified crude sourcing strategy has been a key advantage, but geopolitical uncertainties pose risks.
Patil explained, “Refiners typically operate on an 80:20 formula — 80% contracted crude and 20% spot crude. However, due to the war situation, contracted crude supply has been disrupted.”
He noted that Indian refiners, including Reliance, are adapting by sourcing alternative crude grades. “We are replacing Middle East crude with similar grades like Ural crude. It is not exactly the same, but comparable enough to maintain distillate output,” he said.
While some changes in yield are expected, the impact on margins may be limited. “Distillate yield may fall from around 80% to 70%, but the impact on GRM will be minimal. Once sourcing stabilizes, we do not see a major impact on margins,” he added.
Consumer Businesses Show Mixed Trends
On the consumer side, Reliance’s retail and telecom businesses present a mixed picture.
Patil pointed out that retail revenues remain strong. “Retail revenue growth is quite healthy — 11% YoY excluding FMCG and 14% including FMCG,” he said.
However, margins are under pressure due to a shift in business mix. “The online segment is growing faster than offline and B2B. This has slightly dented margins, which were down by 62 basis points YoY, leading to EBITDA growth of only about 3%,” he explained.
Looking ahead, he expects this trend to continue. “If online remains the main growth driver, revenue growth will stay in double digits, but EBITDA growth will likely remain in the higher single digits,” Patil concluded.