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RIL Q3 results analysis: Reliance Jio does most of the heavy lifting as retail biz struggles: RIL Q3 takeaways

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MUMBAI: Reliance Industries, India’s largest conglomerate, showed signs of recovery in its oil-to-chemical business in the December quarter as the opening up of the economy helped improve demand, but the company’s retail business is still nursing from the impact of the Covid-19 pandemic.

The oil-to-telecom giant reported better-than-expected consolidated net profit for the reported quarter but the topline growth remained elusive as revenues plummeted 21 per cent year-on-year.

The company’s energy business was the worst affected by the Covid-19 pandemic given that the demand for transportation fuel sank due to ban on international travel and most people choosing to stay at home.

The telecom business remained the shining beacon of growth for the company as its sales and bottomline both showed significant improvement. Even at an operating level, the telecom business’ operating profit and margins showed sequential improvement.

Yet investors did not seem much impressed by the company’s earnings as global depository receipts listed on the London Stock Exchange fell 1.5 per cent to $57.05.

Here are the few major takeaways from the company’s Q3 earnings:
Oil-to-chemical business shows recovery
The energy business reported sequential growth in revenues, although year-on-year performance remained tepid. The recovery is being helped by the re-opening of the domestic economy and strong buoyancy in the petrochemical operations.

The company benefited from the improvement in local demand as it switched its petrochemical product slate to focus on the domestic market instead of exports. However, the picture still remains hazy as the company said that demand for jet fuel was still trending below pre-Covid levels and transportation fuel demand was hit again by restrictions in the US and Europe.

Debt repayments sink interest costs

RIL’s interest costs in the quarter sank 20 per cent on-year to Rs 4,326 crore as the company continued to pay down debt it had accumulated for funding its telecom business in early parts of the 2010s. RIL had raised over Rs 2 lakh crore in the initial months of the pandemic by selling stake in Jio PLatforms and retail arm to become a net debt-free company.

Lower tax and higher other income boost profits
The company’s current tax in the quarter plummeted 85 per cent on year to Rs 295 crore. At the same time, RIL’s other income in the reported quarter saw a sharp rise of 36 per cent on-year to Rs 4,453 crore, helping the overall net profit rise nearly 13 per cent.

However, the company’s bottom line performance could have been a lot worse as it took an impairment of Rs 15,691 crore in the quarter in its shale gas business in the US, but managed to realise a deferred tax benefit of Rs 15,570 crore which helped minimise the impairment cost to merely Rs 121 crore.

Retail still hurting from lockdowns
The company’s retail business continued to suffer in the December quarter as revenues declined nearly 10 per cent even on a sequential basis as the company said that footfalls had not yet recovered to pre-Covid levels.

“Operating environment continued to remain challenging with sporadic Covid-related restrictions and local issues,” the company said. RIL had re-opened 96 per cent of its stores in the quarter, but only half of them were fully operational, reflecting the challenges posed by localised lockdowns in the country.

In a sign of recovery, though, the grocery business and electronics stores sustained double-digit growth, while the fashion and lifestyle business delivered a strong rebound, surpassing pre-Covid levels. That was helped by a near 12 times year-on-year jump in digital orders.

RJio remains the driver of growth

The telecom business of RIL has continued to show strength through the pandemic months as individuals locked up in their houses binged on data on their mobiles and laptops.

The average revenue per user of the company improved significantly in the quarter to Rs 151, beating analysts’ estimates and reflecting growing pricing power in the telecom industry. Data traffic rose 4 per cent sequentially and voice traffic climbed 4.6 per cent. However, analysts will be worried about the higher churn rate in the segment of 1.63 per cent, which the company blamed on Covid-19.

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