Burgeoning capital spend, falling refining margin and slowing momentum in the telecom business seem to have increased pressure on the balance sheet of Reliance Industries (RIL), which turned in its worst performance in terms of return on assets (RoA) — 4.35% — in FY19.
The RoA of country’s largest company by market capitalisation has been dwindling over the last few years after touching a high of 12.7% in FY08, data sourced from Bloomberg showed.
The return ratio, which indicates how profitable a company is relative to its total assets, stood at an average of 7.3% during the last fifteen years. It also signals how efficient management is at using its assets to generate earnings.
Kotak Institutional Equities which reiterates its “sell” rating on the RIL stock observed, “concerns on persisting high capex, non-contributing capital work in progress and rising leverage, on or off the balance sheet, which preclude improvement in return ratios”.
The refining margin of RIL has successively fallen in the last six quarters to $8.2 per barrel in Q4FY19 and, the segment Ebit of refining business slid by 19.1% to `19,868 crore in FY19.
The petrochemicals business also posted a sequential fall of 3.2% in Ebit to `7,975 crore in Q4FY19. The fall in petrochemicals business was largely attributable to decline in production volumes of polymers and intermediates and lower margins for polymers.
While its retail business did reasonably well in Q4FY19, the slowing momentum in the telecom business was a bit of a disappointment. The stand-alone Ebitda on a sequential basis and the adjusted net profits were lower, and reflected the weak performance of the downstream business.
RIL’s gross capex jumped to a record-high of `1.3 lakh crore, including `68,500 crore on Jio. The effective consolidated net debt of the company increased by nearly `1 lakh crore during FY19 to `3.3 lakh crore, including liabilities pertaining to fibre/tower entities.
The Kotak Institutional Equities also opined notwithstanding Jio’s demerger, overall capital work in progress remained high at `1.8 lakh crore, including `1.1 lakh crore in standalone entity.
RIL’s financing from net working capital reduced during FY19 due to lower payables.
The total assets of the company rose two-fold in the last five years to `10.02 lakh crore through FY19, with cash & cash equivalents surpassing `1.3 lakh crore at the end of March 2019.
