Akash Jain
We are bullish on Reliance Industries and expect a target of Rs 1,100 by FY19 end. We believe the company is strongly placed after the aggressive capex done by it.
Most of its projects have started delivering which would give a boost to its cash flow boost in upcoming years along with improved return ratios. We would look it as a long-term India story of diversification rather than watching its results on QoQ basis.
We like the performance shown by the company in FY18 and especially petchem segment and JIO operations. In a short span of time, the company has gained 45 percent subs market share in mobile broadband segment. Jio, which with 186.6 million subscribers is the world's largest and fastest growing mobile data network, saw profits rise to Rs 510 crore, up 1.2 percent over third quarter earnings.
Though Jio started operations in September 2016 with free voice and data offering, 2017-18 was first full year of its financial reporting. Despite low-cost mobile services, Jio posted the highest average revenue per user in the industry at Rs 137.1 per month during the reported quarter.
Sunil Bharti Mittal-led Airtel reported average revenue per user (ARPU) of Rs 116 for the quarter, down by 26.7 percent from Rs 158 it had registered a year ago. We believe, Jio will play a crucial role in earnings growth.
In Q4FY18, the company’s revenue stood at Rs 129120 crore, an increase of 39 percent compared to Rs 92889 billion in the corresponding period of the previous year. Exports (including deemed exports) from India during the January-March 2018 quarter were higher by 32.5 percent at Rs 51295 crore (USD 7.9 billion) as against Rs 8718 crore in the corresponding period of the previous year due to higher volumes and product prices in refining and petrochemical business.
Increase in consolidated revenue was primarily on account of volume increase with starting up of petrochemicals projects and oil price-related increase in realisations for refining and petrochemical products.
Higher interest and depreciation charges with the commissioning of projects across businesses, however, resulted in relatively lower growth in profit after tax (PAT). The company reported a consolidated net profit of Rs 9435 billion for the quarter ending March 31 (Q4) on the back of improved performance of its petrochemical and retail businesses.
The profit was largely in line with street estimates and represents a 17.3 percent increase over Rs 8046 billion reported in the year ago quarter. Earnings from the refining and marketing business took a hit, with a 10.9 percent year-on-year decline in its earnings before interest and taxation (EBIT) for the March 2018 quarter.
The company said, the fall was largely on account of reduced crude throughput and adverse move in Brent-Dubai crude oil price differentials.
The company’s petrochemical segment witnessed robust performance which improved overall profitability. Petchem business registered a topline growth of 13 percent led by a mix of higher prices for products along with higher volumes especially in paraxylene and ROGC (refinery of gas cracker). EBIT growth of 12 percent was driven by strong margins from polypropylene, PVC (polyvinyl chloride) and downstream polyester products. With the full commissioning of the refinery off cracker plant, we expect great vertical integration and higher margins for the petrochemical business which is already posting good growth.
Reliance Jio Infocom reported its second quarterly net profit at Rs 510 crore, marginally up from the preceding quarter ended December when the telecommunications subsidiary showed a profit for the first time at Rs 504 crore. For 2017-18, the Jio operations reported a PAT Rs 723 crore against a loss of Rs 3.1 crore in 2016-17.
RIL’s gross refining margin (GRM) was down marginally at USD 11 a barrel for the quarter from USD 11.6 in the previous quarter.
For the full year of 2017-18, RIL recorded consolidated revenue of Rs 4,30731 crore, an increase of 30.5 percent, compared to Rs 3,30180 crore in the previous year.
The company’s topline was also boosted by robust growth in the retail and digital services businesses. Robust growth of 134 percent in its retail business and continuing growth momentum in wireless subscriber additions for digital services business supported its topline. The company’s plans to further expand its consumer retail presence in every format which would further drive profitability in the coming years.
Commenting on the results, Mukesh Ambani, chairman and managing director, RIL, said, “The year (2017-18) was a landmark year for Reliance, where we established several records on both operating and financial parameters. Reliance has become the first Indian company to record PBDIT (profit before depreciation, interest and tax) of over $10 billion with each of our key businesses — refining, petrochemicals, retail and digital services achieving record earnings performance. Substantial synergies, productivity gains and production growth in our energy and materials business have allowed us to perform at very competitive levels despite the uptrend in oil prices through the year.”
Increase in petroleum product prices were led by 18 percent year-on-year increase in brent oil price to USD 57.5 a barrel. The company also announced that it plans to shut oil and gas production at its main fields in KG-D6 block in the coming months and begin complying with the government’s guidelines for decommissioning facilities in the Bay of Bengal block where output has hit its lowest ever.
Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd
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