Mukesh Ambani-led Reliance Industries (RIL) reported a consolidated net profit of Rs 94.35 billion for the quarter ending March 31 (Q4) on the back of improved performance of its petrochemical and retail businesses. The profit was largely in line with the consensus estimates of Rs 93.79 billion according to a Bloomberg poll of analysts, and represents a 17.3 per cent increase over Rs 80.46 billion reported in the year ago quarter.
The company’s refining business saw some weakness, which though was compensated by the petrochemical and retail businesses. Jio, its telecom business, posted in-line performance for the quarter.
The oil-to-telecom conglomerate’s consolidated net revenue (excluding the goods and services tax, excise duty and service tax) stood at Rs 1.17 trillion, an increase of 38 per cent, compared to Rs 848.23 billion in the corresponding period of the previous year. Revenue, too, was largely in line with a Bloomberg estimate of Rs 1.16 trillion. Strong growth in revenues was helped by higher prices of crude oil and petrochemicals. However, higher interest and depreciation charges on account of the commissioning of projects across businesses resulted in relatively low growth in profit after tax (PAT).
“Reliance has become the first Indian company to record PBDIT (profit before depreciation, interest and tax ) of over $10 billion (annual basis) with each of our key businesses — refining, petrochemicals, retail and digital services achieving record earnings performance,” said Chairman and Managing Director Mukesh Ambani.
In 2017-18, the company reported a net profit of Rs 360.75 billion, higher by 20.6 per cent compared to Rs 299.01 billion reported a year back. Net revenue for the full year was at Rs 3.92 trillion, about 28.3 per cent higher than Rs 3.05 trillion in 2016-17. “The polyester and polymer businesses have been good and in FY19 we should get the benefit of higher volumes. Retail and Jio have reported exceptional numbers at an aggregate level,” said V Srikanth, joint chief financial officer, RIL.
The commencement of the digital services business, petrochemical projects at Jamnagar and higher loan balances during the March quarter, saw the company’s consolidated finance cost jump to Rs 25.66 billion as against Rs 5.56 billion in the last quarter of 2016-17, and Rs 21 billion in the December 2017 quarter.
For the refining business, which contributed about half of RIL’s profit in FY18, the gross refining margin (GRM, a key profitability indicator) was $11 per barrel. It was down from $11.5 per barrel reported in the corresponding quarter a year back as well as $11.6 in the December 2017 quarter.
Earnings from the refining and marketing business took a hit, with a 10.9 per cent year-on-year decline in its earnings before interest and taxation (EBIT) for the March 2018 quarter. The company said, the fall was largely on account of reduced crude throughput and adverse move in Brent-Dubai crude oil price differentials. The benchmark Singapore complex GRM averaged at $7.0 per barrel during the quarter, compared to $7.3 per barrel in December quarter and $6.4 per barrel in the year ago period. On the fuel retail side, RIL said it operated 1,313 petroleum retail outlets in the country.
The decline in refining segment’s margins was well compensated by strong profitability in petrochemicals and retail segments. The petrochemicals segment reported a record EBIT of Rs 64.35 billion aided by strong volume growth (up 42 per cent), higher margins for polypropylene, downstream polyester and fibre intermediate products. The segment saw revenues grow by 44 per cent year-on-year led by expansions (higher volumes from new paraxylene, refinery off-gas cracker and its downstream units). It accounted for 23 per cent of RIL’s consolidated revenue and 40 per cent of profit in FY18.
The organised retail business is also seeing strong growth, with revenues up 134 per cent year-on-year and EBIT up by 291.4 per cent. Reliance Retail has become the first retailer in India to cross the $10 billion revenue milestone, on an annual basis.
On its shale gas business, the company added, improvement in price realisation has helped negate the dip in volumes. The shale gas business, for the December quarter, posted a lower EBIT loss of Rs 1.63 billion, as against Rs 3.96 billion reported in the December 2016 quarter. December quarter financials for US Shale are consolidated in the March quarter results, as per Indian Accounting Standards. The results of this business are reported with a quarter’s lag.
For its telecom business, which saw a decline in its average revenue per user (ARPU), Anshuman Thakur, Head- strategy for Jio said, the dip was mainly due to the reduction in prices (tariff plans), which was undertaken at the beginning of the March quarter. ARPUs, during the March quarter, was at Rs 137.1 per month. Company officials added that the Home-to-fiber would be the next opportunity that the company will look at, without sharing further details.
The decline in ARPU was, however anticipated as various brokerages such as Nomura had pegged it at Rs 140 compared to Rs 154 in the December 2017 quarter. An analyst at a domestic brokerage said that while he expects no incremental discounting (in tariff plans) moving forward, a rising subscriber base is positive. Reliance Jio’s net profit remained largely flat on a sequential basis as decline in APRU was offset by strong subscriber addition, he added.
Abhijeet Bora at Sharekhan said that Reliance reported largely in-line standalone EBITDA (earnings before interest, tax, depreciation and amortisation) as marginal beat in petrochemicals EBIT margin was offset by slightly lower than expected GRM. Analysts believe that recent surge in the oil prices would improve the economics of RIL’s petcoke gasification project, which in turn would benefit the refining margins, which is keeping them positive on the stock.
The RIL share price touched an all-time high of Rs 1,010.7 in Friday’s trading session, before closing at Rs 994.75, up about 2 per cent. Results were declared post market hours.
Overall, the company said, it has spent Rs 210 billion as capital expenditure in the March quarter at the consolidated level, of which Rs 140 billion was spent for the telecom business. As of March 2018, the telecom business’ total debt was at Rs 570 billion and RIL’s gross debt was at Rs 2.19 trillion.