RIL revenues decline 2.5% in Q3; Reliance Retail, Jio boost profit

Mukesh Ambani
Mukesh Ambani-controlled Reliance Industries’ (RIL’s) good performance in its new-age digital and retail businesses compared to the traditional oil and petrochemicals has started showing in its numbers with the group announcing a marginal 3.6 per cent year-on-year (YoY) increase in RIL’s profit before tax at Rs 14,962 crore for the December-ended quarter. 

On the planned sale of 20 per cent in the oil-to-chemicals  business to Saudi Aramco, officials refused to comment on the timeline for its definitive agreement. “It is not a deal that will get done by March. We cannot comment on the timelines of (definitive agreement),” said V Srikanth, joint chief financial officer, RIL. 

The deal is valued at $15 billion and expected to help reduce the company’s debt.

The segment profit (earnings before interest and tax, or EBIT) for the group’s digital business increased by 63 per cent YoY to Rs 3,857 crore while that of Reliance Retail Venture went up by 58 per cent at Rs 2,389 crore. On the other hand, the petrochemicals segment, which contributes the most to profits, saw a 28.5 per cent decline in its EBIT to Rs 5,880 crore and refining EBIT grew 12 per cent to Rs 5,657 crore.

RIL’s net revenues, too, were disappointing as they fell 2.5 per cent YoY to Rs 1.53 trillion, while Reliance Jio’s revenues increased 28 per cent and Reliance Retail’s 27 per cent.

RIL’s net profit for October-December 2019 increased by 13.5 per cent to Rs 11,640 crore, beating street estimates.

In a Bloomberg poll, 10 analysts estimated revenues of Rs 1.45 trillion and net income of Rs 11,435 crore for the third quarter. The company said it had reported its highest ever consolidated net profit.

Ambani, chairman and managing director, RIL, said: “The third-quarter results for our energy business reflect the weak global economic environment and volatility in energy markets.”   

“Within our O2C (oil to chemicals) chain, downstream petrochemicals profitability was impacted by weak margins across products with subdued demand in well-supplied markets. Refining segment performance improved in a difficult operating environment, given our continuous focus on cost positions, high operating rates and product placement,” he added.

The decrease in RIL’s revenues is primarily on account of a 10.6 per cent decline in the oil-to-chemicals business revenues, with a lower product price realisation and 6.6 per cent fall in Brent crude price. This was partially offset by a continuing growth momentum in consumer businesses, the company said in its statement. 

In the refining segment, RIL reported a gross refining margin (GRM) of $9.2 a barrel for the quarter. In the previous quarter, the GRM stood at $9.4 a barrel while in the year-ago quarter it was $8.8 per barrel. “The full impact (of International Maritime Organisation regulations) has not come in yet. We expect it will eventually show,” Srikanth added. He also added it would take 12-18 months for petrochemical prices to improve. Revenues for the petrochemicals segment fell 19 per cent to Rs 36,909 crore. The company also expects the full impact of the petcoke-gasifier project to reflect in the earning for full year FY21.

Though Jio lost 22.3 million subscribers during the quarter to end with 370 million of them, primarily because of “excessively heavy voice users, owing to implementation of IUC tariffs due to regulatory uncertainty”, the digital services business reported a 36 per cent increase in revenues to Rs 17,555 crore.

Jio also became a net recipient of access charges within two months of implementing inter-connect user charges (IUCs), while its average revenue per user (ARPU) stood at Rs 128.4 (including IUCs), up marginally from Rs 127.5 in the previous quarter.

Reliance Retail also posted robust YoY revenue growth of 27 per cent to Rs 45,327 crore.

The company’s debt was at Rs 3.06 trillion in Q3, against Rs 2.87 trillion in March 2019. Its net debt for the company as of December 2019 was at Rs 1.53 trillion. “Intensity of capital expenditure has been coming down quarter on quarter,” Srikanth said. 

He added the company would look at refinancing debt as a natural course of business. 

The board of directors of Reliance Jio Infocomm (Jio) approved a scheme of arrangement between certain classes of its creditors, including debenture holders, for transferring identified liabilities of about Rs 1.04 trillion for an equal consideration to the parent company. Jio has sought the National Company Law Tribunal’s approval for the transfer.

Exports (including deemed exports) from RIL’s India operations were lower by 13.7 per cent at Rs 53,804 crore ($7.5 billion) as against Rs 62,378 crore in the corresponding previous period due to lower price realisation from the petrochemicals and refining businesses. Higher sales volumes of petrochemicals business products in domestic market also contributed towards reduction in exports.

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