Reliance Industries (RIL) has lost the tag of India's highest profit-making company to Tata Consultancy Services (TCS) in the March 2020 quarter and the culprit is the Covid-19 pandemic.
At Rs 8,049 crore, TCS’ reported profit after tax (PAT) during the January-March 2020 quarter was ahead of RIL’s reported PAT of Rs 6,348 crore during the same quarter. RIL reported a sharp 39 per cent year-on-year decline in net profit during the quarter, thanks to inventory losses due to a sharp fall in crude oil prices. In comparison, TCS’ net profit was down around one per cent on year-on-year during Q4FY20.
For nearly two decades now, RIL has been the most profitable company in the private sector. The Mukesh Ambani-controlled conglomerate, however, remains miles ahead of TCS in other financial parameters such as total revenue, operating profit, net worth, assets, and market capitalisation (m-cap).
This is the second time that the Tata group company beat RIL in the net profit league table on a quarterly basis. In December 2014 quarter, TCS net profit was marginally ahead of RIL’s.
RIL booked an inventory loss of Rs 4,245 crore net of taxes during the quarter due to a dramatic drop in oil prices accompanied with unprecedented demand destruction due to Covid-19.
RIL remains the country's most profitable company on annual basis with net profit of Rs 39,354 crore in FY20, compared with TCS' Rs 32,340 crore.
It is also the first time in 30 quarters that RIL reported YoY decline in net profit on trailing 12-month basis, which also means a decline in the company's earnings per share.
The changing fortune of these companies also reflects in their m-cap. There has been a game of cat and mouse between the two of the country's most valuable companies in terms of m-cap for nearly a decade now. RIL at the top of the m-cap for nearly a decade till 2012 when TCS overtook it, thanks to faster revenue and profit growth it posted in the post-Lehman period.
Beginning 2012, TCS was at the top for around five years but RIL went past the technology major in early 2018 as investors cheered the success of its telecom venture – Reliance Jio.
TCS again overtook RIL in m-cap league table in the last quarter of 2018 only to lose as investors bid up RIL's share prices in anticipation of stake sales in oil and gas to Aramco and a reduction in its debt.
At current stock prices, RIL is valued at Rs 9.3 trillion against TCS' m-cap of Rs 7.6 trillion.