Reliance Industries (RIL) is likely to witness higher profit growth in its consumer businesses—telecom and retail—from next year vis-à-vis its traditional oil refining and petrochemical business. The higher growth will help consumer businesses leapfrog RIL’s standalone business, which is oil to chemicals (O2C). The twist in the tale is that the conglomerate built the telecom and retail verticals using the cash flow from O2C.

Analyst community expects a reduction in capital expenditure at telecom and retail, while the businesses improve cash flow aided by booming margins. According to a report by Bernstein Research, Reliance Jio’s focus will shift to monetisation of assets with the completion of 5G rollout and it will lead to moderation in capital expenditure. “We expect around 15% CAGR revenue growth for Jio over the next 3 years with a strong 11% plus tariff hike in FY25. Market share gains will continue as Jio reaches around 500 million subscribers and around 47% revenue share by FY25,” it said.

At the retail front, the performance of the grocery business remains solid for Reliance Retail Ltd (RRL) supported by price hikes of staples and recovery in general merchandise demand, says JP Morgan in its report. Robust performance in fashion and lifestyle despite muted category demand and the improving traction for grocery in quick commerce channels is also helping the company. “The operating leverage is aiding Reliance Retail’s margin expansion,” says JP Morgan.

The retail business grew 24% year-on-year which Bernstein believes is sustainable with store expansion and a higher eCommerce mix. “We see normalisation in retail capex with a focus on improving revenue per square feet as older stores mature,” the analysts said.

While consumer businesses, which were started/ramped up in the last five years, see a better profit leeway for the next few years, O2C earnings growth is likely to end flat. The volume growth and the margin expansion are unlikely to improve in the petrochemicals business this year. The earnings growth will stall at current levels until 2026-27 when additional capacity comes online, says Bernstein. However, there is hope in the oil and exploration and production business. The volumes are likely to peak in the next 12 months while the company continues to build solar and battery-making capacity.

RIL’s petroleum business

RIL's profit from consumer business to leapfrog petroleum