The fall in petrochemicals segment EBIT was mainly due to weaker petrochemical product margins offset by record petrochemical production and cost-optimisation through light-feed cracking. Petrochemical segment recorded an EBIT margin of 19.7%.
Reliance Industries (RIL), the country’s most valuable company by market cap, reported an 18.3% increase in its consolidated net profits to a record high of Rs 11,262 crore for the quarter ending September, beating Bloomberg consensus estimates. Even as the company’s consumer businesses have fared well, lower tax rate and higher other income helped drive the increase in net profit. RIL’s consolidated other income for Q2FY20 stood at Rs 3,614 crore, which forms about 32% of its net income for the quarter.
Revenues for Q2FY20 increased 4.8% to Rs 1.63 lakh crore, which were led by robust growth in retail and digital services businesses that grew by 27% and 43%, respectively. This was partially offset by decrease in refining and petrochemicals segment revenue with 17.7% fall in Brent crude price. The company’s operating income rose 15.5% to Rs 25,820 crore. RIL is targeting an annual run-rate of Rs 100,000 crore in operating income, as consumer businesses have attained scale and are contributing meaningfully to both revenues and operating income. Consumer businesses now account for 33% of the firm’s operating income.
RIL’s stock surged nearly 5% this week to briefly hit the Rs 9 lakh crore market capitalisation mark on Friday. The stock hit a fresh life-time high of Rs 1,415.30 on the Bombay Stock Exchange (BSE) and became the first Indian company to reach the milestone.
The stock has gained 26.3% since January against the Sensex’ gain of 9%.
Mukesh Ambani, chairman and managing director of Reliance Industries said the results reflected benefits of RIL’s integrated oil-to-chemicals (O2C) value chain and the rapid scale-up of the consumer businesses. “During this quarter, our O2C businesses gained from favourable fuel margins environment, feedstock sourcing flexibility and higher petrochemicals volumes. Our O2C business, with new partnerships, is best placed to pursue growth and substantial value creation,” he said.
Revenues from its core refining and marketing segment decreased 1.6% year-on-year to Rs 97,229 crore, while segment EBIT declined by 6.9% YoY to Rs 4,957 crore. The decline in segment EBIT was mainly due to marginally lower GRM and narrow light-heavy crude differentials. The second quarter gross refining margins (GRMs) came in at $9.4/barrel (bbl) against $9.5/bbl in the same period last year. RIL’s refining margin outperformed Singapore complex margins by $2.9/bbl. Explaining the lower than expected GRMs, Alok Agarwal, RIL’s chief financial officer, said: “Oil prices remained volatile during the quarter and the average price was 10% lower than the last quarter. Competition for heavy crude was harder from both Iran and Venezuela and that impacted refining margins”.
RIL’s petrochemical business witnessed its segment revenue fall by 11.9% year-on-year to Rs38,538 crore. Petrochemicals segment EBIT fell 6.4% on a year-on-year basis at Rs7,602 crore. The fall in petrochemicals segment EBIT was mainly due to weaker petrochemical product margins offset by record petrochemical production and cost-optimisation through light-feed cracking. Petrochemical segment recorded an EBIT margin of 19.7%.
Reliance Retail’s segment revenue crossed Rs40,000 crore mark during the quarter. Segment revenue for Q2FY20 grew by 27% year-on-year (Y-o-Y) to Rs41,202 crore as against Rs32,436 crore in the corresponding period last year. Segment EBIT for the quarter grew by 63.6% Y-o-Y to Rs2,035 crore. EBIT margins improved 110 bps to 4.9% led by customer centricity, operational efficiencies and expansion in Tier 3 and Tier 4 markets. During the quarter, Reliance Retail added 337 stores taking the total store count to 10,901 stores, with area under operations of 24.5 million square feet. The company also disclosed that a wholly-owned subsidiary of RIL had entered into an agreement for acquisition of equity shares of Shopsense Retail Technologies (‘Shopsense’ or ‘Fynd’) for a cash consideration not exceeding Rs 295 crore.
Explaining the lower tax rate during the quarter, V Srikanth, CFO of RIL, said, “The effective MAT rate will be around 21% for RIL if you compute for this time compared to 25% earlier. The MAT rate has been reduced for RIL and not for Rjio and Retail, for which it continues to be the marginal tax rate, because we have not got to choose between the option A or option B. If you look at numbers, the current tax was deferred tax on profit before tax, for second quarter. This only reflects the MAT rate coming down for RIL, otherwise there is no change in the tax rate of Jio and Retail which would be close to 30-35%.”
The company reiterated that its investment cycle has come to an end with all major investments in network behind it. The company has also taken strategic initiatives to create new platforms of growth. Additionally, the company said that it had entered into an agreement with Saudi Aramco for 20% in O2C at enterprise value of $75 billion. This is the second partnership, apart from its joint venture with BP for gas retailing for which RIL will get Rs 7000 crore.