Q4 Results: Reliance Industries Still Grapples With Mounting Debt
Reliance Industries Ltd.’s debt jumped the most in at least nine years in fiscal ended March even as the nation’s most valuable company demerged its tower and fibre assets.
Total debt of the oil-to-telecom conglomerate rose nearly 31 percent year-on-year to Rs 2,87,505 crore on the back of capital expenditure of more than Rs 1,32,500 crore, according to data compiled by BloombergQuint.
Rising debt has been an overhang for the energy company led by India’s richest man. Since the launch of Reliance Jio Infocomm Ltd., consolidated debt of the Mukesh Ambani-owned parent has been increasing due to higher capital expenditure. Earlier this year, Reliance Industries had announced plans to monetise its tower and fibre assets to pare debt. Brokerages, including Edelweiss Securities and CLSA, had said the sale of its non-core telecom assets would allay a key concern. But even a successful demerger couldn’t lower its debt.
The company, however, has been able to maintain its leverage ratio due to higher contribution from consumer and petrochemical business. International rating agencies like Moody’s Investor Service and Fitch Ratings have kept their long-term rating on Reliance Industries same as that of India’s.
Demerger Of Non-Core Assets
Reliance Jio transferred its tower and fibre assets in a special purpose vehicle, which will be controlled by an investment infrastructure trust. It had invested close to Rs 1,25,200 crore in these assets and currently values them at Rs 2,03,300 crore, according to the company filings.
As part of the demerger, the company transferred debt—bank borrowings and other liabilities—worth Rs 70,700 crore.
The transfer of the assets will lead to higher cost for Reliance Jio in the financial year ending March 2020. That could lower the company’s earnings before interest, tax, depreciation and amortisation, and profit as it will have to pay for using these towers and fibre assets.
Key Takeaways From Q4FY19
Standalone net profit of Reliance Industries fell for the first time in 17 quarters in the January-March period due to lower refining and petrochemical margins.
The refining segment was hit by lower margin and throughput. Gross refining margin fell due to excess inventory and lower demand. But the premium to Singapore GRM was higher. The premium to the Asian benchmark expanded to $5 per barrel, the highest in seven quarters, partly aided by lower feedstock prices.
After rising for eight quarters, the petrochemical segment’s earnings before interest and tax declined 3 percent due to weak prices and lower volume offtake.
Reliance Industries reported the highest ever EBIT margin for the retail segment at 4.7 percent. The revenue and EBIT growth rates of the business, however, slowed and were the lowest in nine quarters.
The average revenue per user of Reliance Jio fell for the sixth straight quarter to Rs 126 as it continued to add users on lower rentals. Its revenue, however, continued to grow due to strong subscriber addition.