RIL's Q4 PBT falls 33% to Rs 9,223 cr due to pressure in petrochemicals biz

Segment-wise, RIL reported a gross refining margin (GRM) of $8.9 per barrel, higher than analyst expectations
Mukesh Ambani promoted Reliance Industries (RIL) reported a 33.5 per cent decline in its consolidated profit before tax (PBT) at Rs 9,223 crore for the quarter ended March 2020 (Q4) due to pressure in its petrochemicals business, higher expenses and exceptional items.

Net profit attributable to the owners of the company, after exceptional items was 38.7 per cent lower at Rs 6,348 crore from Rs 10,362 crore in the quarter ending March 2019. The company incurred a one-time loss of Rs 4,245 due to the Covid-19 pandemic induced lockdown and inventory losses because of fluctuations in the global oil prices.

This loss has been categorised as "exceptional item" besides a Rs 53 crore against liability relating to erstwhile subsidiary GAPCO. It reversed Rs 31 crore for AGR dues of RelianceJio which it had taken for the quarter ended December 31, 2019.

The fall in net profit is its biggest-ever since June 2014 quarter, when RIL started declaring consolidated numbers. The last time its profit fell sharply (by 23.2 per cent) was in September 2016 quarter.

Consolidated net sales for the quarter under review was at Rs 1.36 trillion, 2.4 per cent lower from Rs 1.39 trillion reported in the corresponding quarter a year back.

RIL’s net profit and net sales numbers as well as petrochemicals segment performance missed analysts estimates. In a Bloomberg poll, two analysts estimated a pre-tax profit of Rs 7,761 crore, and 12 analysts estimated net income (adjusted post tax profit) at Rs 10,406 crore. Part of the poll, 11 analysts estimated revenue at Rs 1.38 trillion.

“RIL's March quarter results were slightly underwhelming. While refining and retail business did better than expected, the petrochem business disappointed majorly,” said Deepak Jasani, Head of Research, HDFC Securities on Reliance Industries Q4FY20 results.

RIL reported a gross refining margin (GRM) of $8.9 a barrel for Q4, higher than analyst expectations which were below $8 per barrel. This compares to $8.2 a barrel reported in the same period a year ago.

The company said revenue from the refining and marketing segment declined by 3.4 per cent during the quarter over last year to Rs 84,854 crore, while EBIT (earnings before interest and tax) increased by 28.2 per cent year-on-year to Rs 5,706 crore with higher throughput and better GRMs.

“Refining performance is better than expectations as the company has not built in the inventory loss at the segment level,” said an analyst with a domestic brokerage firm who did not wish to be identified.

In the past, RIL has not taken inventory gain or loss separately. So, even if part of the inventory loss pertains to the refining business, the like-to-like GRM would have been lower.

RIL said the due-diligence by Saudi Aramco for the planned investment in the oil to  chemicals (O2C) business is on track as both the parties are committed and actively engaged. The company will approach National Company Law Tribunal (NCLT) to carve out the O2C business.

Mukesh Ambani, chairman and managing director for RIL in a statement added, "Despite the daunting challenges arising from the fallout of the global pandemic, our company has once again delivered a resilient performance for 2019-20.”

He said sustained earnings from the O2C segment were possible due to its integrated portfolio, cost-competitiveness, feedstock flexibility and product placement capabilities.

"We continue to operate all our major facilities at near normal utilisation levels," he said.

V Srikanth, joint chief financial officer for RIL said, “Global oil demand has collapsed. Oil prices have been volatile throughout the quarter. The impact of the lockdown has reflected on the transportation cracks.

The consumer business has more than offset the other business Ebitda. With multiple headwinds the quarter performance has been strong.” Revenue from the retail business grew by 4.2 per cent Rs 38,211 crore, while Ebitda for the same quarter grew by 32.9 per cent yoy to Rs 2,556 crore.

A strong operational performance helped RIL’s digital services segment, Reliance Jio beat analyst estimates across all parameters. Strong topline growth and lower interest costs helped it post a 127 per cent year-on-year jump in PBT to Rs 2,931 crore.

On a sequential basis, PBT was up 75 per cent. Net profit jumped 73 per cent on a sequential basis and nearly trebled over the year ago period.

A large part of the gains for Reliance Jio was driven by its revenue performance. Healthy subscriber growth and tariff hikes in the December quarter rubbed on revenues, which gained 27 per cent year-on-year and 6 per cent sequentially.

The company added 17.5 million customers in the March quarter as against expectations of 14 million customers registering a growth of 26 per cent year-on-year (18 per cent sequentially) taking the total customer base to 387.5 million, which was also ahead of expectations.

The price hike taken in the December quarter aided the average revenue per user (ARPU) per month to go up by 1.7 per cent sequentially to Rs 130.6. Full impact of the tariff hike is expected to accrue to the company in the June quarter.

Helped by the sharper gains in the consumer businesses of retail and Jio, their share in RIL's Ebitda increased to 38.6 per cent in Q4, up from 35.8 per cent in December quarter and 29.1 per cent in the year-ago period.

On an annual basis, for the first time, RIL's Ebitda crossed the Rs 1 trillion market (Rs 1.02 trillion) in 2019-20. Ebitda is earnings before interest, tax, depreciation and amortisation.

The company’s outstanding debt as on 31st March, 2020 was Rs 336,294 crore and cash and cash equivalents at Rs 175,259 crore.

RIL expects to complete the capital raising programme totalling Rs 1.04 trillion by June 2020. This includes the investment by Facebook in Jio Platforms, the upcoming rights issue and the previous investment by British Petroleum in 2019-20. RIL on 22nd April 2020 announced Facebook will invest Rs 43,574 crore in Jio Platforms.

"With the Facebook investment we have achieved 50 per cent of the targeted value unlocking in mind,” said Srikanth.

RIL’s annual consolidated net sales saw an increase of 4.8 per cent at Rs 596,743 crore as compared to Rs 569,209 crore in 2018-19 primarily on account of higher revenues from the consumer businesses.

Digital services and retail business recorded an increase of 40.7 per cent and 24.8 per cent, respectively, in revenue as compared to the previous year. Revenues for the refining and petrochemical business, however, declined in line with fall in average oil and product prices for the year. 

Consolidated net profit attributable to the owners of the company at Rs 39,354 crore was a tad lower than Rs 39,588 crore in 2018-19.

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