Reliance Industries Ltd’s investors are in a dilemma after the September quarter (Q2FY27) results: should they celebrate the strong earnings of the oil-to-chemicals (O2C) segment or worry about the weak profitability of the retail business? This predicament assumes even more relevance as the O2C segment currently enjoys abnormal profit, raising doubts about its sustainability.
The Q2 refining margin in the two main transportation fuels – petrol and diesel – is at least twice the five-year average. In this backdrop, the O2C segment Ebitda per tonne (based on production meant for sale) soared 68% year-on-year and 28% quarter-on-quarter to ₹13,924. This mainly drove Reliance’s consolidated Ebitda growth of 23% year-on-year, surpassing most brokerages’ expectations, to ₹56,616 crore.
Global oil demand outlook is weak for 2026. A rebound is anticipated in 2027, but demand is still likely to be marginally lower than the 2025 level. Even if the geopolitical scenario improves, weak demand is not good news for margins. Also, O2C is usually assigned lower valuation multiples because of its commodity nature, so a few quarters of high profit do not lead to a re-rating.
In contrast, the retail business, which enjoys higher valuation multiples, saw a 10 basis points (bps) dip in Ebitda margin sequentially to 7.34% in Q2, while revenue was flat at ₹80,220 crore. The margin fall is a worry even if a year-on-year comparison is ignored due to the shift in festival season this year to Q3 from Q2 in FY26.
According to the management, the online retail margin is lower than offline retail, but the online return on capital employed is higher. So, as Reliance Retail expands its online presence, further margin pressure can be seen.