News Analysis

Reliance Industries: Retail, digital lead the way

Anand Kalyanaraman | Updated on October 19, 2019 Published on October 19, 2019

Lower crude oil prices, lesser refinery throughput and a dip in gross refining margin (to $9.4 from $9.5 a barrel) dragged down the refining segment.

Continued addition of stores and higher subscriber numbers drive strong show

For Reliance Industries (RIL), the September 2019 quarter was an encore of the June 2019 quarter, with the digital and retail segments more than offsetting the weakness in the core hydrocarbon businesses of refining and petrochemicals. RIL’s consolidated quarterly profit of ₹11,262 crore in the September 2019 quarter, up about 18 per cent y-o-y, was driven by sharp jumps in operating profit in the retail and digital businesses (up about 63 per cent each). In contrast, the operating profit in the refining and petrochemicals businesses was down 6-7 per cent y-o-y.

Lower crude oil prices, lesser refinery throughput and a dip in gross refining margin (to $9.4 from $9.5 a barrel) dragged down the refining segment.

Fall in the prices and sharp dip in margins of some products took a toll on the petrochemicals segment. Among other factors, the weakness in the global economy reflected in the performance of these cyclical businesses.

But bucking the overall consumption slowdown in the domestic economy, RIL’s retail business continued its strong growth momentum, aided by store additions (337), higher same-store sales and improved margins. The digital business gained from continued strong subscriber growth with net addition of 24 million subscribers during the quarter.

With nearly 10,900 stores and 355 million subscribers, as of September 2019, RIL’s retail and digital businesses have bolstered their leadership positions. The recent introduction of 6 paise per minute as interconnect usage charges for outgoing calls to other networks should aid the financial performance of RJio in the coming quarters.

While marginal contributors to the overall bottomline, the media business posted a profit in the September quarter, aided by growth in subscription income, while the oil and gas (exploration) segment pared losses. Overall profit was also aided by interest income more than doubling in the September quarter to about ₹2,500 crore.

Optimistic prospects

More than the financial performance, the September 2019 quarter is significant for the big-ticket stake sales announced by RIL during the period. In particular, the deal to sell 20 per cent stake in the refining and petrochemicals businesses to Saudi Aramco should fetch RIL about $15 billion.

This should help the company deleverage its balance-sheet significantly, and further reduce dependence on the hydrocarbons business in line with its stated strategy.

The market seems optimistic about RIL’s growth prospects including its recently launched Jio Fibre service and e-commerce and new commerce plans. The stock has scaled an all-time high and its market capitalisation is within kissing distance of ₹9 lakh crore.

Published on October 19, 2019
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