Reliance Industries Q1 net rises as telecom, retail offset refining hit

Reliance Industries Ltd (RIL) on Friday reported a 6.8% year-on-year (y-o-y) increase in net profit for the June quarter, beating Street estimates on the back of strong performances by Reliance Jio Infocomm Ltd and Reliance Retail, while announcing a major agreement with Brookfield Infrastructure Partners Lp for a ₹25,215 crore investment in Tower Infrastructure Trust.

“This is a single largest foreign investment in an Indian infrastructure vehicle. This is also a significant step forward in optimizing the capital structure of the digital and infrastructure businesses,” RIL said in a press statement.

Net profit increased to ₹10,104 crore during the quarter ended 30 June from ₹9,459 crore in the year-ago period, RIL said on Friday. This compares with the ₹9,706.20 crore estimated by 13 analysts surveyed by Bloomberg.

During the quarter, RIL’s revenue rose 22.1% from ₹ 1.41 trillion in the year-ago period to ₹1.72 trillion in the first quarter of fiscal 2019-20. Analysts had estimated quarterly revenue at ₹1.45 trillion.

“Our earnings were strong despite weak global macro-economic environment and challenging hydrocarbon market conditions. Our downstream businesses delivered resilient performance in an environment of slower demand growth and incremental supplies,” said Mukesh Ambani, chairman and managing director, RIL.

RIL’s gross refining margin (GRM), or the amount a refiner earns by refining one barrel of crude oil, narrowed to $8.1 a barrel—an 18-quarter-low for the company.

GRM for the corresponding period of last year was $10.5 per barrel. Analysts had expected RIL’s GRM in the range of $8-$8.5 per barrel.

Revenue from the refining and marketing segment was also up 6.4% during the quarter, while the segment’s operating profit declined 15.2%.

Refining and marketing segment performance was impacted by lower product realization on a y-o-y basis. Revenue from the petrochemicals segment dropped 6.6% to ₹37,611 crore, against ₹40,287 crore during the first quarter of last fiscal.

“Thanks to the level of integration that we have between refining and petrochemicals, a lot of the volatility has gotten absorbed, and without having any meaningful impact on our earnings,” said V. Srikanth, joint chief financial officer, RIL.

RIL’s digital services businesses clocked Ebitda (earnings before interest, taxes, depreciation and amortization) of ₹4,686 crore, up 49% from ₹3,147 crore in the corresponding quarter of last year.

Average revenue per user (Arpu) for its telecom business came in at ₹122 during the quarter. Analysts had expected an Arpu of ₹128. Arpu is a key measure of profitability for telecom companies.

Reliance Retail saw 47.5% increase in revenue to ₹38,196 crore from ₹25,890 crore a year earlier. Segment operating profit rose 66.2% to ₹1,777 crore from ₹1,069 crore during the period under consideration.

RIL’s outstanding debt as of 30 June stood at ₹2.88 trillion, compared with ₹2.87 trillion in March 2019. The company held cash and cash equivalents of ₹1.32 trillion at the end of the first quarter, compared with ₹1.33 trillion as on 31 March 2019.

On Friday, RIL shares closed at ₹1,249 apiece, down 1% on the BSE.

RIL said on Friday it has entered into an agreement with Brookfield Infrastructure Partners Lp for investments of ₹25,215 crore in Tower Investment Trust.

RIL will get ₹12,000 crore from the transaction, which will be used to repay the existing financial liabilities of the tower business, said Jio.

Brookfield and other investors, subject to approvals, will become co-sponsors of the trust, along with RIL.

In the quarter ended March, RIL had hived off most of its fibre assets and towers into two infrastructure investment trusts (InvITs) to pare debt. RIL had transferred liabilities worth ₹1.07 trillion to the two (InvITs). Along with the preference shares, the total debt of the infrastructure trusts added up to ₹1.85 crore.

The current deal only pertains to tower assets. Reliance Jio lnfratel’s debt will stand at ₹16,000 crore after the transaction is completed, Srikanth added.