Forbes India 15th Anniversary Special

RIL Q3 FY17 net profit rises 3.6%

The conglomerate bucks the trend pursuant to the demonetisation drive to report stellar earnings growth in its retail business. Announces infusion of fresh funds to grow Reliance Jio

Published: Jan 16, 2017 06:51:21 PM IST
Updated: Jan 18, 2017 02:09:39 PM IST

RIL Q3 FY17 net profit rises 3.6%
Mukesh Ambani, CMD, Reliance Industries
Denis Balibouse/REUTERS

Amid a challenging business environment, oil-to-yarn and retail conglomerate Reliance Industries Ltd (RIL) posted a 3.6 percent year-on-year increase in net profit for the quarter ended December 31 to Rs7,506 crore.

The company, led by India’s richest billionaire Mukesh Ambani, clocked a turnover of Rs84,189 crore in the same period, an increase of 16.1 percent over the year earlier.

The increase in revenue was primarily on account of increase in prices of refining and petrochemical products led by a 13 percent increase in Brent crude prices,” RIL, which announced earnings on Monday, said in a statement. “Turnover was also boosted by robust growth in retail business.”

RIL’s profitability was led by strong operating performance from the petrochemicals business, sustained strength in the refining business and favourable exchange rate movement. This was partially offset by the losses in the oil and gas segment that suffered from lower volumes and weak domestic price environment.

On a sequential basis, RIL’s turnover grew 3.1 percent and net profit grew 4.2 percent.

And that’s where the real surprise that was in store as far as the conglomerate’s third quarter earnings for fiscal 2017 were concerned. In the age and times of demonetisation – a government order announced on November 8 led to Rs1,000 notes and the old Rs500 notes ceasing to be valid legal tender – when retail and consumer product companies are expected to bear the brunt of diminished purchasing power in the hands of the common man, Reliance’s retail operations has bucked the trend and posted a stellar set of numbers.

RIL’s organised retail business, under which the company sells everything from vegetables and grocery to apparel and consumer durables, posted a 47.2 percent rise in turnover in the October-December quarter to Rs8,688 crore. Earnings before interest and tax (Ebit) from the segment also rose significantly to Rs231 crore, up 55 percent year-on-year. Even on a sequential basis, revenue from the retail operations grew 7.5 percent, whereas Ebit rose 42.6 percent.

RIL admitted that the demonetisation of large denomination notes led to “cautious buying” by customers for a short period but a “strong value proposition, wide product offering and a positive shopping experience helped Reliance gain share in modern trade.”

The company stated that it extended support to all customers, business partners, farmers, and small suppliers across the value chain during the initial period of demonetization. “Overall impact from demonetization has been positive for core retail business with favourable long-term implications for modern trade,” RIL’s statement said.

During the quarter, Reliance Retail added 111 stores across various formats.

In its refining business, RIL reported a gross refining margin (GRM) of $10.8 per barrel, down from $11.5 in the year-ago period and up from $10.1 in the sequentially preceding period. RIL’s GRM outperformed the benchmark Singapore GRM by $4.1 per barrel. On a quarter-on-quarter basis, GRMs improved on the back of strong fuel oil and gasoline cracks spurred by strong growth in demand.   

Due to increase in prices across the polymer and polyester chains, RIL’s petrochemicals segment continued to perform well and revenue from this business rose 17.8 person year-on-year to Rs22,854 crore. Higher margins saw Ebit from this vertical also increase 25.5 percent to Rs3,301 crore.

Throwing light on its new telecom venture Reliance Jio Infocomm (Jio), RIL said that as on December 31, 2016 Jio, which is offering free voice and data services to users till March 31, had notched up 72.4 million subscribers on its network. The company also said that Jio was adding an average of 6 lakh customers each day.

In view of the initial customer response that Jio’s services have received and to address the anticipated growth in demand for digital services, RIL also proposes to infuse additional funds, to the tune of Rs30,000 crore, into the company via a rights issue of 9 percent non-cumulative optionally convertible preference shares.

(Reliance Industries owns Network 18, publisher of Forbes India)