RIL to buy stake in Balaji Telefilms; Q1 FY18 net profit up 28%

Image: Amit Dave / Reuters

Oil-to-retail and telecom conglomerate Reliance Industries Ltd (RIL) beat Street estimates to post a 28 percent year-on-year rise in net profit at Rs 9,108 crore for the quarter ended June 30, mainly due to improved revenues and profitability from its refining and petrochemicals business. The growth in profitability was accompanied by a 26.7 percent jump in topline to Rs 90,537 crore.   

RIL also disclosed that the company’s board of directors had approved a plan to acquire a 24.92 percent stake in media and entertainment company Balaji Telefilms for Rs 413 crore. Balaji Telefilms is promoted by Ekta Kapoor and her family, led by her father and yesteryear Bollywood superstar Jeetendra. Balaji Telefilms is engaged in the production of TV content from broadcasters, production and distribution of films and also operates an over-the-top subscription video-on-demand platform called ALT Balaji.

The acquisition is strategic to RIL’s plans of securing content for its digital services and broadband wireless access platform Reliance Jio, which managed to notch up 100 million subscribers on its 4G telecom network in under six months of its launch, which offers data at low prices.

“We welcome Reliance Industries as a partner in our growth journey towards becoming the preferred content producer for the Indian diaspora across all means of video consumption and across all geographies,” Balaji Telefilms’ chairman Jeetendra Kapoor said in a statement. “This investment is a vote of confidence to the Company’s strategic move to own our IP and our viewers.”  

The stake that RIL proposes to acquire, through a preferential issue, in Balaji Telefilms is just short of the threshold (25 percent) that would have triggered a mandatory open offer for further shares of the latter. As on June 30, the promoters held 43.29 percent in the company. After the preferential issue of new shares in the company to RIL, the promoters’ stake in the company will be diluted to around 32.6 percent.      

Axis Capital acted as the sole investment banker for this transaction.

RIL’s reported earnings for the first quarter of fiscal 2018, especially for its refining business, was contrary to what analysts tracking the company expected. According to a Motilal Oswal research report RIL was expected to report a decline in gross refining margin (GRM) in the April-June quarter. Instead, the Mukesh Ambani-led company’s GRM improved to a nine-year-high of $11.9 per barrel from $11.5 in the previous quarter, as well as the year-ago period.

According to RIL’s earnings statement, issued after market hours on Thursday, an increase in prices, volumes and margins of its refining and petrochemicals products led to higher revenues and operating profits for the company.

On a sequential basis however, RIL’s revenues declined 2.5 percent and net profit (excluding exceptional items) fell marginally by 0.3 percent. RIL’s reported net profit for the June quarter consists an exceptional gain of Rs 1,087 crore representing profit from the sale of its stake in Gulf Africa Petroleum Corp (GAPCO).

RIL’s GRM outperformed the regional benchmark Singapore GRM by $5.5 per barrel. “Marginally weaker product cracks (margins) environment on a quarter-on-quarter basis was offset by yield shift and robust risk management. Further, favourable Brent-Dubai differential aided crude sourcing during the quarter,” RIL said in its statement.    

“RIL is expected to report a decline in its GRM in the quarter, led by narrowing light-heavy differential and inventory losses,” the Motilal Oswal report had said.

The vertically-integrated company’s petrochemicals business complemented the refining vertical’s performance as well, with revenues increasing 22.9 percent over the year earlier to Rs 25,461 crore.  Segment Ebit (earnings before interest and tax) also rose sharply by 43.7 percent to Rs 4,031 crore, “supported by favourable product deltas and volume growth.” This vertical’s operating profit margin came in at 15.8 percent in the April-June period, its highest ever quarterly level.

Earnings from the petrochemicals business will be bolstered further with RIL fully commissioning a new Para-xylene (PX) manufacturing facility at its integrated manufacturing complex in Jamnagar, Gujarat. “With the commissioning of this plant, RIL’s PX capacity has more than doubled making it the world’s second largest producer of PX with about 11 percent of global production,” the RIL statement said.  

“Over the past 3-4 years, we have made significant investments in new plants, thus creating organic growth platforms for our energy and materials business,” RIL chairman Mukesh Ambani said in the company’s statement. “Full commissioning of the new PX facility…will strengthen the integration with our polyester chain, Ramp-up of ethane import projects has helped in diversifying feedstock resources and mitigating risks for our existing crackers at Dahej and Hazira.” 

The conglomerate’s oil and gas exploration and production business continued to struggle in the June quarter as well with revenues declining 1.2 percent year-on-year to Rs 1,324 crore and operating losses widening to Rs 373 crore versus Rs 312 crore a year earlier. The retail business continued to do well with revenues rising nearly 74 percent over the year earlier to Rs 11,571 crore and Ebit almost doubling to Rs 292 crore. 

RIL’s net debt as on June 30 stood at Rs 1,28,567 crore; and the company had cash and cash equivalents to the tune of Rs 72,107 crore.

RIL’s shares fell 0.31 percent on the BSE on Thursday to Rs 1,528.70 per share. The bourse’s benchmark index, S&P BSE Sensex lost 0.16 percent to 31,904.40.

(Reliance Industries is the owner of Network 18, publisher of Forbes India)