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Last Updated : Aug 21, 2017 03:46 PM IST | Source:

Reliance Industries Q1FY18 review: Firing on all cylinders

The fiscal started on a strong note for Reliance Industries (RIL) with record consolidated profit aided by strong gross refining margin (GRM) in the refining segment and record margin in the petrochemical business.

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The fiscal started on a strong note for Reliance Industries (RIL) with record consolidated profit aided by strong gross refining margin (GRM) in the refining segment and record margin in the petrochemical business.

Also Read: Reliance AGM Live

The topline growth of 27% was aided by all the segments except the upstream business.
(Rs crore) Q1FY17 Q4 FY17 Q1 FY18 yoy (%) qoq (%)
Revenue 71451 92889 90537 27% -2.5%
EBIDTA 11223 12233 12554 12% 2.6%
Other Income 2378 1936 2124 -11% 9.7%
Interest 1206 556 1119 -7% 101.3%
PBT 9658 10254 10536 9% 2.8%
PAT 7077 8053 9079 28% 12.7%
Equity Nos 295 295.9 295.9
EPS (Rs) 24.0 27.2 30.7 28% 12.7%
EBIDTA (%) 15.7% 13.2% 13.9%

While the reported net profit grew 28%, the adjusted profit growth was 12.8% at Rs 8021 crore as the reported number had an exceptional gain of Rs 1,087 crore representing profit from divestment of stake in Gulf Africa Petroleum Corporation (GAPCO).

Segmental results – strong on all counts

The key segment of Refining registered 18% year on year growth in topline and reported Gross Refining Margins (GRM) of $ 11.9/bbl as against $ 11.5/bbl in the previous and the corresponding quarter. Despite flat Singapore Complex Margin, Reliance’s GRM outperformed Singapore complex margins by $ 5.5/bbl. The marginally weaker product cracks were offset by yield shift and robust feedstock management. Favourable Brent-Dubai differential also aided crude sourcing during the quarter.


Highest petchem margin

For the petrochemicals segment, revenue increase of 22.9% was aided by price increase and volume expansion due to capacity addition. The EBIT margin for the quarter was at 15.8%, at an all-time high level.

During the quarter the company has commissioned the PX facility which should support the earnings momentum going forward as well. With the commissioning of this plant, RIL’s PX capacity has more than doubled making it world’s second largest producer of PX with about 11% of global production.

Retail – strong show

Retail also reported a strong show with revenue registering a growth of 74%. Margins improved a tad and the business added 18 stores during the quarter thereby taking the total number of stores to 3,634.


Oil & Gas – the new beginning?

However, Oil & Gas continued with a subdued show – revenues de-growing by 1.2% led by lower volumes in US shale and domestic operations. However, it is important to note that the financial performance of US Shale has improved driven by better price environment, slightly higher production and stable cost structure.

For the Indian upstream business, in June 2017, Reliance and BP have announced their intent to develop already discovered deep water gas fields.

Time to reap benefits of long gestation capex

RIL’s USD 18.5 billion core projects (petcoke gasification, polyester expansion, off-gas cracker and ethane sourcing) are now either complete or on the verge of completion. The massive capex had supressed return ratios so far. Since many of the long gestation projects for RIL are nearing commissioning, this should significantly improve return ratios and cash flows going forward.

In FY17, RIL completed the world’s largest and most complex ethane sourcing project. The PX facility has been commissioned in the quarter. The Refinery Off gas Cracker (ROGC) project is expected to be fully commissioned by 3QFY18, and the petcoke gasifier project by 4QFY18.

The AGM will perhaps throw more light on the timeline of these project commissioning. Market also awaits clarity on Jio’s capex in light of the surprise fund raising that got announced.

What next for Jio?

Reliance surprised the street by announcing Rs20,000 crore rights issue of optionally convertible preference shares for Jio to further fund its 4G foray. The money raised through rights issue would be utilized to further strengthen Jio’s network reach and quality.

After intensifying the price war in the industry by providing freebies, Jio is now moving towards monetizing its customer base, which stands at 117.4 million at the end of May-2017 (up from 108.9 million in Mar 2017) and following a balanced approach between revenue growth and subscribers addition.

The company has recently come up with new plans wherein it has reduced the validity indicating an uptick in ARPU (average revenue per user). The most prominent plan of Rs399 for 84 days validity translates into an ARPU of close to Rs124, up from Rs94 based on the earlier plan (Rs309 for 84 days). This, however, is much lower than the incumbents’ ARPU (Airtel: Rs 158, Vodafone: Rs 142, Idea: Rs 142).

Based on ARPU and subscribers base, our back-of-the-envelope calculations suggest that Jio is expected to generate Rs12,450 crores of revenues in FY2018. Moreover, we believe that the potential consolidation in the industry will support the case for higher ARPU for the key players in the industry.

Additionally, Jio’s plan to launch Rs500 4G mobile phone would give it an edge in capturing additional subscribers coming from the mass market and can help it penetrate in rural areas.

The new addition – Balaji Tele

What took he street by surprise was Reliance’s investment of Rs413 crore (24.9 percent stake) in Balaji Telefilms. This investment will act as a medium to source content for its Jio platform. Experts believe this to be a very rational and relevant move.

In sum, with capex in core projects now translating to cash flows and telecom staring at break-even, despite the run up in the stock, the valuation at 12.5X projected earnings of FY18 deserves attention.

(Disclosure : Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.)
First Published on Jul 21, 2017 09:52 am
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