The earnings reported by Reliance Industries Ltd (RIL) for the first quarter of FY19 shows why it pays to be a large conglomerate operating on scale.
Despite seasonal weakness in one of its main businesses–crude refining–the company, led by India’s richest billionaire Mukesh Ambani, still managed to report its highest ever quarterly net profit for the April-June quarter, thanks to the robust performance of its other verticals such as petrochemicals, telecom and retail.
RIL, which reported its earnings on July 28, saw its net profit rise to Rs 9,459 crore in the quarter ended June 30, up almost 18% from a year ago; revenue rose a staggering 56.5% to Rs 1.41 lakh crore. Sequentially, net profit rose 0.3% and revenue close to 10%.
The conglomerate’s petrochemicals business, which is the second highest contributor to its topline, was the main driver of profitability during the quarter due to a 35% increase in volumes and 24% higher price realisation. Turnover from the segment rose 58% year-on-year to Rs40,287 crore as earnings before interest and tax (Ebit) nearly doubled to Rs7,857 crore.
The substantial investments that RIL made to augment its petrochemicals manufacturing capacity and improve efficiency by utilising gas generated as a by-product of its refining operations as feedstock is beginning to pay off. RIL’s petrochemicals business reported a margin of 19.5% in the June quarter; this was around 16% a year ago.
A post-earnings research note by Motilal Oswal dated July 28 attributed the strong petrochemicals margin profile to “firm polyester chain deltas, stable polymer deltas, feedstock cost optimisation and a superior product mix”.
Then there was Jio, the group’s broadband wireless and digital services company, which reported a net profit for the third straight quarter, on the back of average revenue per user (ARPU) of Rs135 and a robust subscriber base of 215.3 million users. Jio’s net profit rose 20% quarter-on-quarter to Rs612 crore.
Though ARPU declined marginally, a 15% quarter-on-quarter increase in subscribers made up for the minor loss in per unit revenue.
“We doubled our customer base and most user metrics in the last 12 months. 215 million customers within 22 months of start is a record that no technology company has been able to achieve anywhere in the world,” RIL chairman Mukesh Ambani said in an earnings statement issued on July 28. “Jio has built an ecosystem for digital services and its affordable and simplified pricing strategy offers every Indian a chance to experience the ‘power of data’.”
Bearing testimony to the rapid ramp-up in scale witnessed in Jio’s operations, the telco’s revenues of Rs 9,567 crore in the June quarter (up 14% sequentially) was higher than that of India’s second largest carrier by subscribers, Vodafone India, which had reported a turnover of Rs8,682 crore for the same period.
RIL’s retail business, too, contributed its fair share to the company’s overall earnings. With a total store count of 4,003 outlets, revenues rose 124% from a year ago to Rs25,900 crore with an EBITDA (earnings before interest, tax, depreciation and amortisation) of Rs 1,200 crore, up 205%.
Morning, as they say, shows the day. And if RIL’s first quarter earnings for FY19 are anything to go by, this year promises to be another stellar one for the company, which has a market capitalization of Rs7.15 lakh crore.
The company has recently completed a capital expenditure cycle that saw it invest Rs3,30 lakh crore across businesses such as telecom, refining and petrochemicals; and it is now time for the company to realise cash flows from augmented operations–part of which will surely be used to repay debt. Though its debt ratios are still fairly conservative, RIL has run up a total outstanding debt of Rs2.42 lakh crore. And reduction in debt and interest payment levels may well be the next trigger for a re-rating in the company’s share price, which has been on a roll.
RIL’s share price closed at Rs 1,129.60 per share on the BSE on July 28, up 1.73%. The bourse’s benchmark S&P BSE Sensex gained 0.95% on the same day to end at 37,336.85 points. Over the last one year, the company’s scrip has gained more than 41%.
