Reliance Industries' refining boom may extend into Q3; discounted crude to offset rising freight costs

Dharmesh Kant of Chola Securities, speaking to CNBC-TV18, said Reliance had reported a strong set of numbers in Q2, with global trade developments benefiting its oil-to-chemicals (O2C) business. He expects these conditions to continue playing out in the third quarter and recommended buying Reliance shares on every dip. Kant’s assessment on refining follows Reliance's strongest-ever quarterly performance in its O2C business, which benefited from exceptionally strong refining margins amid tight global product supplies.

The segment's revenue surged 44.2 percent year-on-year to Rs 2.32 lakh crore in Q2 FY27, while EBITDA jumped 67.9 percent to an all-time high of Rs 25,203 crore. The EBITDA margin expanded 160 basis points to 10.9 percent. Transportation fuel cracks, a measure of refining margins, increased 3 to 3.7 times from a year earlier, reaching historic highs during the quarter. Nomura attributed Reliance's record second-quarter performance to multi-decade-high refining cracks, noting that consolidated EBITDA rose 19 percent sequentially and exceeded its estimates by 9 percent, led by the O2C business.

The refining environment during the September quarter was marked by geopolitical tensions and elevated crude oil prices. According to Prabhudas Lilladher, Brent crude averaged $91.4 per barrel during Q2 FY27 after surging in September amid renewed US-Iran tensions. Reliance's petrochemicals operations also benefited from improved product spreads. Margins in the polyester business reached a three-year high, supported by a 15 percent increase in paraxylene spreads and a 52 percent rise in purified terephthalic acid spreads.

Following the record results, Goldman Sachs and Nomura maintained their Buy ratings on Reliance Industries, with target prices of Rs 1,840 and Rs 1,560 per share, respectively. However, Goldman Sachs expects refining margins to moderate in Q3 due to higher very large crude carrier (VLCC) freight costs, but will be partly offset by processing discounted heavy crude.