News Analysis

RIL: Saved by ‘optical enhancement’

Anand Kalyanaraman BL Research Bureau | Updated on July 30, 2020 Published on July 30, 2020

Reliance shares rose 4.3 per cent in Mumbai on Friday, taking its market value to $189 billion   -  REUTERS

As expected, it’s not a pretty picture on the June 2020 scorecard of RIL. An exceptional gain of ₹4,966 crore due to profit on divestment of shares of Reliance BP Mobility Services helped RIL show a 31 per cent YoY jump in consolidated profit. But for this, the company’s profit before exceptional item and tax actually would have fallen sharply by 41 per cent YoY to ₹8,542 crore.

That’s because the Covid-related disruption resulted in big demand destruction and took a heavy toll on three key profit drivers of RIL — petrochemicals, refining and retail. The digital business put up a strong show but this was insufficient to offset the negative impact.

The operating profit of the petchem business fell nearly 50 per cent YoY to ₹4,430 crore due to lower price realisation and margins as the company shifted focus to exports due to weak domestic demand.

In the refining business, operating profit fell nearly 26 per cent to ₹3,818 crore due to lower demand and margins for products such as petrol, diesel and ATF.

Retail hit

The retail business, a key growth driver in the prior quarters, also took a big hit this time around. The grocery and connectivity segments in retail, however, did well. Overall though, the retail business’ operating profit fell more than 47 per cent y-o-y to ₹1,083 crore. The silver lining was the digital business that saw operating profit grow 55 per cent to ₹7,803 crore.

RIL’s digital business has been able to capitalise well on the increased need for connectivity in the lockdown period with strong subscriber addition, growth in data traffic and increase in ARPU.

Overall, it did not help that the finance cost rose 31 per cent YoY to ₹6,735 crore; this was due to higher loan balances and adverse exchange rate movements. What did aid was the reduced tax expense due to lower rates and deferred tax credit.

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Published on July 30, 2020
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