Jio, retail boost RIL’S profit to record high

Pre-tax profit rises 14% to ~15,055 crore, but refining margins disappoint

Mukesh Ambani-promoted Reliance Industries (RIL) on Friday reported a 14.1 per cent rise in its consolidated profit before tax (PBT or pre-tax profit) at ~15,055 crore for the September quarter (Q2) of 2019-20 (FY20), following robust growth in the retail and digital service businesses.

The two consumer businesses now account for 30 per cent of RIL’S earnings before interest and tax (EBIT), as against 20 per cent in the year-ago quarter. The results, declared after market hours, were a mixed bag with some parameters ahead and a few falling short of analysts’ estimates.

Net profit for the quarter under review was at ~11,262 crore, up 18.3 per cent from ~9,516 crore a year ago. Both PBT and net profit were at their highest ever.

Consolidated net sales (excluding the goods and services tax and the excise duty) stood at ~1.49 trillion, an increase of 3.6 per cent as compared to ~1.43 trillion in the corresponding period of the previous year.

“The increase in revenue is primarily on account of robust growth in the retail and digital businesses, which grew by 27 per cent and 43 per cent, respectively. This was partially offset by a decrease in refining and petrochemicals segment revenue with a 17.7 per cent fall in Brent crude price,” RIL said in a statement.

In a Bloomberg poll, analysts had estimated RIL’S consolidated net profit at ~11,080 crore and revenue at ~1.53 trillion.

Apart from strong revenue and profit growth in the retail and digital businesses, profit growth was aided by a 189 per cent surge in other income at ~3,614 crore, compared to ~1,250 crore in the year ago period. The company’s gross refining margins (GRM) for Q2 came in at $9.4 per barrel, its highest in the last four quarters. It was $9.5 per barrel a year ago, and $8.1 per barrel in the June 2019 quarter. Most analysts had estimated the GRM in the range of $9.5 to $10.5 per barrel for Q2.

EBIT for the refining business fell 6.9 per cent year-on-year (YOY) to ~4,957 crore. For its petrochemicals business, EBIT fell 6.4 per cent to ~7,602 crore.

THE RECORD NET PROFIT FOR THE QUARTER REFLECTS BENEFITS OF OUR INTEGRATED OIL-TO-CHEMICALS (O2C) VALUE CHAIN AND THE RAPID SCALE-UP OF OUR CONSUMER BUSINESSES MUKESH AMBANI,

CHAIRMAN AND MANAGING DIRECTOR, RIL

“IMO is clearly the short-term positive trigger for improvement in refining margin, but because of the overall weak demand environment, it is pulling the margins in the other side. It (IMO) can be constructive impact,” said V Srikanth, joint chief financial officer of RIL.

The International Maritime Organization (IMO) regulations require ships to switch to cleaner fuel starting January 2020.

In the consumer businesses, organised retail and digital services (Jio), Q2 EBIT grew by 64 per cent to ~2,035 crore, and 63 per cent to ~3,322 crore, respectively, compared to the year ago quarter.

On the changes in the tax structure for companies in India, Srikanth added, “Effective MAT (minimum alternate tax) rate for the current quarter was 21 per cent, which in previous quarter was at 25 per cent, and which is the effect of MAT coming down.” He added, “For Jio and retail, it continues to be the marginal tax rate because we have not yet elected to choose either option A or option B.”

RIL’S outstanding consolidated debt as on September 30, 2019 rose to ~2.91 trillion compared to ~2.87 trillion as on March 31, 2019. Net debt, officials said, was flat at ~1.57 trillion as of September 2019. The company's capital expenditure for Q2 was at ~19,000 crore.

At RIL’S annual general meeting in August, group chairman Mukesh Ambani announced a proposed investment by Saudi Aramco in the company’s oil-tochemical division. Commenting on the deal, Srikanth added, “We continue to move ahead in our conversations and the number of things to be done, be it due diligence, structure finalisation, regulatory compliance. Work is going on.”

Exports from RIL’S India operations continue to fall in the September quarter, and were lower by 12.1 per cent at ~53,161 crore as against ~60,460 crore in the year ago period, primarily due to lower price realisation for refining and petrochemical products and emphasis on domestic placement.