Reliance’s refining margins projected to stay strong compared to PSU peers

Reliance Industries’ refining earnings will remain steady, supported by its position as India’s largest importer of Russian crude and favourable global supplies, according to analysts at JM Financial and Goldman Sachs.

Image used for representation purpose only. Photograph: Alexander Manzyuk/Reuters

Reliance imported more Russian barrels than any other Indian refiner in the past eight months, according to data from Bloomberg/Kpler.

In August, Reliance bought about 664,000 barrels daily, well ahead of Indian Oil Corp (341,000 barrels) and Nayara Energy (229,000 barrels). Bharat Petroleum took 133,000 barrels a day, while Hindustan Petroleum imported just 28,000 barrels.

Reliance’s purchases peaked at 746,000 barrels a day in June, underscoring its dominant sourcing position.

The purchases strengthened Reliance’s refining economics, as Russian crude is typically priced at a discount to global benchmarks.

A note by JM Financial said Reliance’s oil-to-chemicals division will continue as a profit driver, as global constraints underpin margins.

Goldman Sachs projected “upcycle refining margins driven by favourable crude feedstock dynamics like strong non-OPEC supply and tightening global refining supply-demand (1.3 mn bpd of permanent capacity closures globally over 2025-26).”

The bank forecast Reliance’s ebitda growth will accelerate to 16 per cent in FY26 from 2 per cent in FY25, with refining contributing alongside retail and Jio.

Reliance’s import advantage has translated into strong refining margins relative to peers.

Reliance reported a gross refining margin of $8.5 a barrel in FY25, compared to Indian Oil at $4.8 a barrel, BPCL at $6.8 and HPCL at $5.7.

Over the past year, Reliance’s margins have consistently outperformed BPCL and HPCL and remained broadly competitive with Indian Oil.

At its annual meeting in August, Reliance reiterated its diversification push into consumer products, retail, telecom, and new energy.

Yet, analysts said refining remains at the core of its financial strength.

JM Financial underscored that Reliance’s margins will stay elevated in the near term, while Goldman Sachs noted refining will be a key contributor to earnings momentum across the next fiscal cycle.

Both brokerages highlighted potential risks, including weaker refining and chemical spreads, lower-than-expected retail margins, project delays, and higher capex.

With global supply tightening and discounted Russian crude flows sustaining its cost advantage, Reliance is positioned to maintain refining profitability ahead of most domestic peers, according to the brokerages.

Russia, which previously held a negligible share of India’s oil imports, has accounted for 37 percent of the world’s third largest oil consumer buys this year, according to Kpler data.

India took advantage of a $20 a barrel discount on a delivered basis after Europe halted purchases in the wake of the Ukraine war.

However the discounts have narrowed to a tenth of that as sanctions tightened, Bloomberg reported.

The government should bring back the windfall tax on refiners to support Indian exporters hit by a 50 per cent tariff imposed by the United States, said Raghuram Rajan, former governor of Reserve Bank of India, in a TV interview.

The tax was scrapped in December.

“Given that there is now a cost to buying Russian oil falling on our small and medium exporters (for example, in apparel and textiles), why not impose a windfall profit tax on our refiners proportional to the Russian oil they buy, and transfer it to our small and medium exporters?

“That will ensure those in India who benefit from Russian oil also pay for it instead of letting others pay,” Rajan told India Today TV.

A spokesperson for Reliance said the oil-to-chemicals division’ higher profits in FY23 and FY24 were due to strong product margins.

In FY22 (before the war in Ukraine), the division reported an ebitda of Rs 6,958 crore and that of Rs 7,558 crore in FY23.

Ebitda was Rs 7,490 crore in FY24 and Rs 6,438 crore in FY25.

“The FY25 profitability is only 4 per cent more than the pre-war period, despite higher production levels from various expansions.

“Data clearly shows that the comment that disproportionate profitability due to Russian crude is incorrect.

“Higher per cent of Russian crude did not result in higher ebitda.

“Hence, the notion that Reliance profited excessively from Russian oil is misplaced and not substantiated by data,” said a company official.