Even Reliance couldn’t beat the economic slowdown!
Last updated: 31 Jul, 2020 | 08:21 am
- One-time gain helps to beat estimates: Reliance Industries net profit rose 30.6% to ₹13,248 crore in Q1FY21, beating analyst estimates, mainly due to a one-time gain of Rs 4,966 crore from the transfer of its petrol marketing business to the joint venture between RIL and BP Plc. Analysts had earlier estimated a profit of about ₹7,800 crore.
- Revenues down due to refining and petchem businesses: Reliance’s revenue dropped 42% on-year, mainly as the Oil & Gas business (which contributed to more than ~60% of overall revenue in FY21) dragged. Revenue from the refining business fell 54% to Rs 46,642 crore. Revenue from petchem business fell 33% to Rs 25,192 crore. RIL’s petrochemicals unit was hurt by lower demand and global oversupply during the quarter. “GRM or Gross Refining Margin, which signifies how much Reliance Industries earns per barrel has fallen to just $6.30 per barrel, from a high of $12 per barrel in Sep-2017.” Severe drop in Crude Oil prices also lead to inventory losses for the company. This segment has severely hurt profitability in the quarter, mainly due to severe demand destruction due to the lockdown-induced curbs in business activity.
- Reliance Jio shines: Reliance Jio was probably the only bright spot, with Revenues jumping 34% on-year to ₹19,513 crores. “Reliance Jio was the only segment in which revenue rose in the quarter. The ARPU (Average Revenue Per User) jumped 8% to ₹140.30 in the quarter.” Jio holds the key to Reliance Industries’ transition from an Oil business to a Data Business. Jio was the fastest growing segment, with Strong EBITDA growth of 55.4% on-year to ₹ 7,281 crore. The net profit of Jio jumped 183% on-year t0 ₹ 2,520 crore.
- Reliance Retail muted: The lockdown in various states has significantly disrupted the retail business during the quarter. The consumer electronics and fashion retail operations were suspended fully in April and partially in May and June. Footfalls in retail stores fell 57% during the quarter. The Grocery and Connectivity vertical, which remained open (essential services) posted a strong 21%-on year rise in revenue.
- While the Oil & Gas segment was severely affected, one-time gain from BP deal and strong performance by Reliance Jio helped Reliance Industries to post a decent set of numbers.
- As it stands today, the future growth and the roadmap of the company is oriented towards its consumer businesses (Reliance Retail, Jio and Jio Platforms). These high growth areas have driven the valuations in the stock and will continue to do so as we get close to the inevitable demerger of Reliance.
- The shares have gained more than 2.5 times from March lows to hit a fresh record high of ₹2,198.
Our VGQM model has a ‘HOLD’ rating on the stock.