Reliance Industries (NS:RELI) announced its quarterly results on October 30, reporting a consolidated bottom-line increase of 28 percent characterized by higher revenue, higher EBITDA, and lower interest charges over the previous quarter.
With strong quarterly figures, the business operations are seen to be approaching the pre-Covid levels for most operating segments. As per the chairman Mukesh Ambani, retail buying has returned to normalcy for key consumer products with the easing of lockdowns. The company has witnessed a sharp recovery across its Order-to-Cash (O2C) business processes.
The shape of consolidated quarterly numbers
Higher revenue over the previous quarter was on the account of favorable oil prices and retail business rebound. Retail stores experienced more footfalls with the lockdowns easing but the retail operations are still eyeing the impulsive customer purchases to push the retail numbers over pre-Covid levels.
Retail and digital services contributed 85 percent of the incremental consolidated EBITDA for the quarter. The weak oil refining numbers were offset by an improved performance by the petrochemical segment. Petrochemicals and oil products demand materialized into a 34.6 percent increase in the EBITDA for the segment. The company achieved record quarterly EBITDA for the digital services arm.
The decrease in finance costs was supported by fulfilling the higher cost obligations in advance. The acquisition of Reliance Holdings USA (RHUSA) partially increased finance costs. While the outstanding debt for the quarter ending was Rs 279,251 crores, funds raised and receivables stood in excess of outstanding debt. The enterprise value of the firm appreciated significantly with a massive inflow of capital in the form of equity investments and strategic partnerships.
Source: Tavaga Research, Reliance Press Release
How did the individual segments perform?
Reliance Jio – Digital Services
Reliance Jio revenue (7.2 percent QoQ) and EBITDA (8.7 percent QoQ) increased sequentially over the previous quarter with a slight increase in EBITDA margin. However, the segment reported a 19.8 percent net profit for the quarter under review.
With a customer base of 405 million subscribers, Reliance Jio became the only operator outside China to cross the 400 million subscriber mark by catering to a single country market. While the wireless line of operations witnessed a strong increase in the subscriber base, the monthly churn rate stood increased due to the impact of the pandemic on recharge cycles.
The more exciting development took place in the 5G space as Jio in collaboration with Qualcomm (NASDAQ:QCOM) achieved a speed of over 1gbps using Reliance 5G solutions. Jio Platforms continued its development on building 5G infrastructure.
JioUPI completed its pan-India rollout with full integration with the BHIM UPI application.
Reliance Retail
Reliance Retail showed a phenomenal increase of 85 percent in the EBITDA for the quarter over the previous one. Revenue of the segment was the same as compared to last year despite stores working at a partial capacity. The increase in revenue implies a rebound in retail buying. Higher EBITDA growth stems from a low base factor, but the EBITDA margin also recovered from 3.8 previous quarter to 5.5 percent for the current quarter implying prompt cost management.
The retail figures point to a V-shaped recovery as the segment will be testing the pre-Covid level of operations.
The grocery line witnessed strong momentum with recovery in electronics and clothing lines as well. The company entered the pharma retail market and continued expanding its digital capabilities across consumption products. With consumer electronics posting twice the revenue than that of the previous quarter, the electronics growth is expected to continue through the third quarter with festive buying in effect.
Reliance Retail also ramped up its digital platforms to support online-buying and sustain competition. JioMart was able to leverage the strong demand for groceries driven by demand for staples and processed food during the lockdown.
Reliance – Petrochem, Refining and Marketing, Oil and Gas Exploration and Media
Petrochemicals segment delivered a strong performance on the back of a recovery in operating levels with some of the company’s crackers working at 100 percent utilization. The growth was driven by improvement in demand, which was led by restricted supply during the lockdown period. Segment revenue for the quarter was Rs 29,665 crores, which is 17.8 percent higher than the previous quarter. The revenue was mainly boosted by an increase in prices across the product line. The EBITDA margin of 20.1 percent was supported by efficient cracker mechanics and increasing PVC margins.
The company achieved the highest quarterly polymer domestic sales and polyester sales also picked up with the easing of lockdown. The revival of the auto, agriculture, and construction sectors is to drive further growth of the petrochemical segment.
The refining and marketing segment reported strong revenue growth (up 33 percent QoQ) supported increasing in the global oil demand and prices in the second quarter. However, the higher revenue numbers were offset by weak segment EBITDA which declined by 21.4 percent over the previous quarter. The company cited the higher cost of crude oil and lower-middle distillate cracks as the reason for the decline in the segment EBITDA.
The oil and gas exploration segment experienced a decline in production and favorable price realization that led to a revenue decline of 29.8 percent QoQ for the segment.
The media segment reported a revenue of Rs 1,061 crores (31.5 percent QoQ) and an EBITDA of Rs 166 crores (514.8 percent QoQ). Revenues from advertising and improved margins for broadcasting proved to be the growth factors of the segment. The segment continued to experience healthy subscription numbers that ultimately converted into increased television viewership. MoneyControl and Voot reported growth in subscribers for paid content.
Capital Financing and Strategic Partnerships
Reliance Industries facilitated the largest fundraising in India during the lockdown period and continued to attract capital from all over the globe. The capital was financed by a rights issue of Reliance shares and asset monetization. The funds received combined with receivables have taken the net debt levels to below zero.
Source: Tavaga Research, Reliance Press Release
- Jio Platforms received investment from behemoths such as Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), KKR, Mubadala, ADIA, Silver Lake, and Qualcomm Ventures.
- Reliance Retail Ventures Limited (RRVL) secured investments from Silver Lake, General Atlantic, Mubadala, ADIA, TPG, and GIC.
- The regulatory authorities are deliberating over the potential acquisition of the Future Group’s retail and wholesale business by Reliance Retail
- RRVL acquired a controlling stake in Netmeds
The overall quarterly results of RIL signal a sharp recovery in just six months after the pandemic made itself known. With the economy opening up and consumer spending returning to normalcy, the company stands to capitalize on demand revival. More importantly, the company showcased a robust balance sheet with the ability to sustain uncertainty in the near future.
Disclaimer: The above analysis is not a stock recommendation