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MUMBAI: For Reliance Industries Ltd (RIL), the digital services business or Reliance Jio’s performance in the March quarter brought immense comfort in these uncertain times of covid-19. Among the company’s key segments, digital services was the only segment to report a sequential Ebit growth during the quarter.

Ebit is earnings before interest and tax - measure of profitability.

The digital services business saw an Ebit growth of 6.4% sequentially. On the other hand, RIL’s petrochemicals, refining and organised retail Ebit declined by 22%, 4% and 14% respectively on a quarter-on-quarter basis. For the oil & gas business, losses at the Ebit level have increased.

Digital services now account for 23.9% of the company's operating profit, up from 15.9% in the year-ago period. Along with the retail business, the company's consumer businesses accounted for 36% of total operating profit compared with 26% a year ago.


Profits of the petrochemicals segment were hit due to a significant decline in margins. Revenues of the segment also declined sharply because of lower realisations along with disruptions in local and regional markets.

For its retail business, March proved to be tepid due to the impact of the lockdown because of covid-19. The non-grocery portion of the retail business took a beating as the lockdown only allowed sale of essentials. The refining business suffered due to a deteriorating margin environment, although RIL did better clocking a gross refining margin of $8.9 a barrel, a significant $7.7 per barrel premium over Singapore complex margin.

So why did the digital services business do relatively better?

The segment’s performance was helped by tariff hikes undertaken in December, although some are disappointed with the Arpu (average revenue per user) performance. Arpu increased about 2% to 130.6 per month in the March quarter from 128.4 a month in the December quarter. Both data and voice usage rose sequentially. According to RIL, operating leverage and improving traffic mix also helped Jio’s profitability.

To be sure, RIL’s traditional energy businesses are expected to bear the brunt of covid-19 related disruptions, as oil prices would remain under pressure and petroleum products’ demand drops. Analysts expect the retail business to recovery gradually. This could well mean that the telecom business can be expected to compensate for the underperformance of the energy segments in the near term.

“Management highlighted that tariff hikes will likely reflect in Arpus in subsequent quarters as not all subscribers have moved to new rates in 4QFY20," point out analysts at Jefferies. Moreover, the telecom business is expected to be relatively protected in covid-19 times.

Meanwhile, RIL’s consolidated net debt increased to 1.61 trillion as on 31 March. In a presentation to media and analysts, V. Srikanth, joint chief financial officer, RIL, said, “If we were to remove the translation impact of foreign currency debt of about Rs8,543 crore, the net debt is flat on a quarter-on-quarter basis."

RIL said it was confident of achieving zero net debt target in calendar year 2020, ahead of its March 2021 deadline. The company is looking to raise about 1.04 lakh crore by the June quarter, which includes investment of 43,574 crore by Facebook in Jio Platforms Ltd, the upcoming rights issue of 53125 crore and the an investment by British Petroleum in FY20.

Note that capital expenditure (capex) for the March quarter stood at 21,707 crore. This is an increase from the December quarter, when capex had declined for the fourth quarter in a row to 14,015 crore.

ABOUT THE AUTHOR

Pallavi Pengonda

Pallavi Pengonda is a financial journalist producing cutting edge commentary and analysis on companies, economy and market trends. Over her journalism career spanning more than 14 years, she has covered topics across sectors such as oil & gas, consumer, aviation and new age tech companies. She heads the Mark to Market team and joined Mint in June 2010. She lives in Bengaluru. She is an art enthusiast and likes to paint in her leisure time.
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