RIL: Consumer businesses remain the key growth drivers

Anand Kalyanaraman BL Research Bureau | Updated on January 18, 2020 Published on January 18, 2020

Yet again, the consumer businesses of Reliance Industries (RIL) — digital and retail — were the key growth drivers for the company. Bucking weak economic growth and subdued consumer spending, the operating profit of RIL’s retail business rose 58 per cent y-o-y, thanks to new store rollouts and higher sales at existing stores.

The operating profit of the digital business, including RJio, rose 63 per cent y-o-y, driven by addition in the subscriber base that touched 370 million as of December 2019, up 32 per cent y-o-y. The recent adverse ruling by the Supreme Court on the adjusted gross revenue (AGR) dispute has had only a small impact (₹177 crore) on RJio, unlike the massive hits taken by competitors Bharti Airtel and Vodafone.

Impact on core biz

Revenue growth in core hydrocarbon businesses — refining and petrochemicals — was impacted by low prices of crude oil and petro-products due to weak global economic growth. The petrochemicals segment was also hit hard by weak margins across most products resulting from oversupply conditions and weak demand; the segment’s operating profit was down nearly 29 per cent y-o-y in the quarter. In contrast, the company managed to grow operating profit in the refining segment by about 12 per cent y-o-y. This was, thanks to, an increase in refinery throughput and product mix optimisation that saw gross refining margin rise to $9.2 a barrel in the quarter, from $8.8 in the year-ago period. The oil and gas (exploration) business, a marginal contributor now, continued to be hobbled by declining volume and prices that resulted in its losses widen. The company’s media business, also a minor contributor, grew operating profit about four-fold y-o-y, thanks to subscription revenue growth and cost optimisation.

The continued strong growth of the consumer businesses, coupled with the stress in the core hydrocarbon segments, has seen the former increase its contribution in overall EBITDA to about 37 per cent in the quarter.

The market seems optimistic about RIL’s growth prospects including its e-commerce and new commerce plans. The stock has been having a strong run on the bourses and its market capitalisation has crossed the ₹10-lakh-crore mark. Progress on the company’s debt reduction plans through planned stake sales and asset monetisation will be key to the stock maintaining its momentum.

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Published on January 18, 2020
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