India’s largest company by market capitalisation - Reliance Industries reported robust performance during 4Q FY23, with a 22 per cent growth (Y-o-Y) in operating profit from a 3 per cent revenue growth. Net profit grew by a healthy 18.3 per cent, despite higher interest (64 per cent increase), and depreciation (43 per cent increase) aided by the strong operating performance and a lower tax outgo (36 per cent).

The blockbuster profit performance for the quarter was largely driven by its Oil to chemicals (O2C) and Oil and Gas segment, which accounted for 58 per cent of the incremental operating profit YoY in 4Q FY23.

Also read: RIL shares rise on strong Q4 FY23 performance across verticals

The company’s flagship business – O2C witnessed a strong rebound in performance after the weakness in Q3 FY23 and contributed 27.6 per cent to the incremental operating profit for the quarter compared to the same period last year. RIL, which operates the world’s largest refinery at Jamnagar in Gujarat with an annual crude processing capacity of 33 million metric tonnes, got a boost from higher cracks for gasoline and improved margins for polymer, which were up by 4 – 25 per cent. On a YoY basis, the O2C segment’s operating profit rose 14.4 per cent, even as revenue declined by about 12 per cent. Operating profit margin improved by 290 basis points to 12.7 per cent.    

RIL’s oil and gas segment got a shot in the arm from the sky-high natural gas prices in India. RIL, which operates KGD6 (Krishna Godavari basin) gas fields, benefitted from the sharp increase in gas prices, which more than doubled over the past year. This segment contributed to over 30 per cent of the company’s overall incremental operating profit during the quarter, as compared to the same period last year. In addition to higher realisation, an increase in gas output from KGD6 fields, helped the 126 per cent jump in revenue to ₹4556 crore in Q4FY23 and the 144 per cent rise in operating profit to ₹3801 crore, implying a massive 83.4 per cent margin for the period. The gas realisation for KGD6 for the quarter stood at $11.39 per mmbtu, which is an 85.8 per cent jump year-on-year, while the realisation for CBM (cold bed methane) soared by 156 per cent to $19.57 per mmbtu. The company produced an average of 20 mmscmd from KGD6 and 0.7 mmscmd from CBM fields.

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The company is undertaking testing and commissioning at MJ field and is expected to be completed by 3Q FY24, post which the total production will increase by over 30 per cent to 30 mmscmd. With the new gas price guidelines, the KGD6 realisation will be capped at $12.12 per mmbtu for the 1H FY24. This is marginally higher than the realisation in 4Q FY23. Further higher gas production coupled with steady prices, should help the gas segment over the next 2-3 years.

RIL’s legacy energy business which includes O2C and Oil and gas, contributed almost 48.5 per cent to the consolidated operating profit in 4QFY23, as compared to 46.5 per cent in the same period last year, implying that the old economy business continued to support the growth of India’s leading conglomerate in the 4Q FY23. New-age businesses, which include Digital, Retail and others, such as financial services, saw their contribution to consolidated operating profit decline to 51.4 per cent in 4QFY23 as compared to 53.4 per cent in the same period last year. This clearly indicates how traditional businesses too remain a key driver in RIL’s growth prospects. Even as new-age businesses will continue to post steady growth, the energy business performance too will be a key fulcrum for stock performance, going forward.    

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