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Reliance’s profit surpasses estimates on back of festive season retail surge, shale sale in US

Launch of affordable 4G JioPhone & hike in mobile tariffs pushed profits during Oct-Dec 2021 quarter. Revenue from refining operations also improved with revived fuel demand.

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Mumbai: Reliance Industries Ltd., India’s biggest company by market value, posted a better-than-expected quarterly profit, on the back of a one-off gain from the sale of its U.S. shale business and as festive season demand at home boosted its consumer-facing businesses.

Net income at the oil-to-retail conglomerate, led by Asia’s richest person Mukesh Ambani, rose 42% to Rs 185.5 billion($2.5 billion) in the three months ended Dec. 31, according to an exchange filing Friday. That compares with the average Rs 152.6 billion profit estimated by a Bloomberg survey of analysts. It recorded an exceptional gain of Rs 28.4 billion.

Revenue rose 54% to 1.91 Rs trillion compared to the same period last year, beating consensus. Total costs jumped 53% to Rs 1.73 trillion.

Key insights

  • Reliance’s consumer-facing businesses including retail, e-commerce and digital services benefited from a strong festive demand during the December quarter, the launch of its new affordable 4G JioPhone handsets and a hike in mobile phone tariffs.
    • Footfalls in the firm’s retail business also improved as Covid-19 infections ebbed low in this quarter, allowing local authorities to relax movement curbs imposed during the deadly delta-led wave during April and May.
  • Revenue from its mainstay refining operations has improved as fewer Covid-related restrictions revived fuel demand. Recovery in demand led to strong margins for Reliance’s energy business, which also benefited after China curbed fuel exports in preparation for winter demand.
    • Revival of gas production from its offshore Krishna-Godavari fields in Indian seas along with higher realizations boosted its energy exploration business.
      • Higher feedstock and energy costs weighed on the downstream chemical margins, V. Srikanth, joint chief financial officer, said after the earnings
      • Reliance’s quarterly earnings were also boosted by an exceptional gain of Rs 28.4 billion from sale of its shale asset in the U.S. The Indian conglomerate divested its remaining shale gas assets in early November
  • Reliance, operator of the world’s largest oil refining complex, plans to invest as much as $76 billion over 15 years in green energy projects as part of a mega-transformation for a group that built its fortunes on fossil fuels.
    • It has already concluded six green deals since June including acquisition of a Norwegian solar panel maker and an Indian builder of renewable projects in its pursuit to turn net-carbon zero by 2035.
  • The group announced on Jan. 1 plans to raise as much as $5 billion in foreign currency bonds and use the proceeds to mainly refinance existing borrowings. Days later, its telecom unit Reliance Jio Infocomm Ltd. followed up with plans for its biggest-ever rupee bond sale for the same purpose.
    • Refinancing its debt will give Reliance a longer-dated debt maturity profile and preserve liquidity as it invests in new and existing businesses, Bloomberg Intelligence’s analysts led by Mary Ellen Olson, wrote in a Jan. 5 note.
  • Investors are keenly awaiting Reliance Jio’s 5G roll out this year as well as news around Reliance’s bolt-on acquisitions of small green energy companies as it rapidly ramps up its renewables portfolio.

Market reaction

  • Reliance’s shares slipped 6% in the December quarter dragging the benchmark S&P BSE Sensex 1.5% lower — a gauge it has the highest weightage in. The stock has recovered since and advanced over 3% this year.
  • Earnings were announced after the close of market hours.

Get more

  • Reliance Jio’s net income rose 10% to Rs 36.2 billion while subscriber base expanded to 421 million users as of end-December: filing
  • Total debt, as of Dec. 31, was at Rs 2.45 trillion while cash and cash equivalents were at Rs 2.42 trillion- Bloomberg

Also read: India’s bond market has Rs 2.25 trillion riding on index inclusion


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