Reliance Industries (RIL) on April 30 reported a consolidated profit of Rs 6,348 crore for the March quarter as it unveiled the terms of a rights issue of Rs 53,125 crore, India’s biggest, and said another Facebook-like deal for its digital unit Jio Platforms was in the works.
India's largest listed company also said Saudi Aramco’s $15-billion investment in its oil-to-chemicals business was on track. These transactions will fast track the target of achieving debt-free status ahead of the March 2021 deadline, it said.
RIL's consolidated profit dropped 45.5 percent due to the slump in oil prices triggered by coronavirus but an impressive 72.7 percent sequential growth by Jio Platforms limited the decline. Last week, Facebook picked up a 9.9% stake in Jio for $5.7 billion (Rs 43,574 crore).
The bottom line was hit by an exceptional loss of Rs 4,267 crore due to fall in oil prices and demand destruction following the coronavirus outbreak. RIL’s YoY decline in profit was 38.7 percent. The consolidated profit in the previous quarter was Rs 11,640 crore and Rs 10,362 crore in the year-ago period.
"In respect to refining and petrochemicals business, the company has determined the non-cash inventory holding losses in the energy businesses due to dramatic drop in oil prices accompanied with unprecedented demand destruction due to COVID-19 and the same has been disclosed as exceptional items," RIL said.
Consolidated revenue from operations for the March quarter declined 11.1 percent sequentially to Rs 1,36,240 crore and the year-on-year was 2.4 percent.
"Indeed, converting the corona crisis into a new opportunity, Reliance will innovatively step up its plans to create much greater societal and shareholder value. I am confident that our India and Reliance will emerge stronger in the post COVID-19 world," chairman and managing director Mukesh Ambani said.
RILs' refining and petrochemical businesses, which was hurt by the coronavirus, declined 18.2 percent sequentially (down 3.4 percent YoY) to Rs 84,854 crore and fell 12.7 percent QoQ (down 24.1 percent YoY) to Rs 32,206 crore, respectively.
The refining business was hit by sharp fall in crude prices but its earnings before interest and tax (EBIT) grew by 28.2 percent YoY (down 3.8 percent QoQ) with higher throughput and better gross refining margins (GRMs).
GRM for Q4FY20 at $8.9 per barrel was much higher than street estimates of around $7.2-8.0 a barrel, and was also remarkably outperforming Singapore complex margins by $7.7 a barrel.
The petrochemical's EBIT dropped 42.8 percent YoY (down 22.4 percent QoQ) to Rs 4,553 crore. The outbreak also impacted petrochemical segment during the quarter with demand slowdown in most end-use markets including consumer discretionary and packaging demand, the company said.
"Consumer businesses further strengthened their leadership positions and recorded robust growth on all operating and financial parameters during the year. Both retail and Jio, continue to work towards providing superior products and services to Indian consumers," Ambani said.
Reliance Jio, the world's largest telecom operator with 387.5 million subscribers, reported a 72.7 percent sequential growth profit at Rs 2,331 crore, which was far ahead of CNBC-TV18 poll estimates of Rs 1,840 crore.
RIL also announced India's biggest rights issue of Rs 53,125 crore — in the ratio of one equity share for every 15 held by shareholders — at a price of Rs 1,257 per share against April 30’s closing of Rs 1,467.05 per share. The rights issue will be the first by RIL in three decades.
"Rights issue will enable participation of all shareholders in growth businesses of Reliance, while promoters will subscribe their full entitlement of the rights issue and also to all the unsubscribed portion," the company said in its BSE filing.
The company is expected to complete the over Rs 1.04 lakh crore capital-raising plan by Q1FY21. It includes the investment by Facebook, the upcoming rights issue and an investment by British Petroleum in FY20.
In addition to the Facebook investment, "RIL has received strong interest from other strategic and financial investors and is in good shape to announce a similar sized investment in the coming months," the company said.
With these equity infusions, RIL is set to achieve net zero-debt status ahead of its own aggressive timeline.
In his AGM speech in August 2019, Ambani had said, "We have a very clear roadmap to becoming a zero net debt company within the next 18 months that is by March 31st, 2021."
Read all the Facebook-Jio deal-related news here
The RIL board also approved a move to spin off the oil-to-chemical (O2C) as a separate business subject to approval of National Company Law Tribunal. Reliance will transfer the O2C business to an entity named Reliance O2C Limited, according to the so-called scheme of arrangement.
This will be done on a slump sale — the transfer of a division of a company to another entity as a going concern — basis for a lump-sum amount equal to the income tax net worth of the O2C division on the appointed date of the scheme. The O2C business comprises the entire oil-to-chemicals business including refining, petrochemicals, fuel retail and aviation fuel (majority interest only) and bulk wholesale marketing businesses together with its assets and liabilities.
In spite of the COVID-19 crisis and the lockdown, due diligence by Saudi Aramco for the planned investment in the O2C business was on track, as both the parties were committed and actively engaged, Reliance said.
Earlier in the day, the company said its entire board and senior leaders would take a pay cut ranging between 30 to 50 percent as a proactive measure to counter the cost pressures from the unprecedented challenges posed by the coronavirus outbreak.
Mukesh Ambani has decided to forego his entire compensation for 2020-21.
Reliance Industries share price fell 26.4 percent in the quarter ended March 2020 and 5.8 percent year-to-date, but has registered a 63 percent rally from low of March 23 amid expectations of rising ARPU, growth in Reliance Jio and consistent progress in deleveraging balance-sheet plan.(Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd)