RIL Q1 Results: Exceptional Gain Masks Sharp Fall In Refining, Petchem Revenues

Reliance Industries Ltd.’s quarterly profit rose even as demand for fuel and refining margins fell due to Covid-19-related disruptions.

Net profit of India’s largest company by market value rose 31% year-on-year to Rs 13,233 crore in the quarter ended June, according to its exchange filing. Analysts’ estimates compiled by BloombergQuint had pegged the bottom line at Rs 7,755 crore.

Profit rose mainly as RIL recorded a one-time gain of Rs 4,966 crore from the transfer of its petrol marketing business to the joint venture between RIL and BP Plc.

• Revenue fell 44% over last year to Rs 88,253 crore—much lower than the Rs 1.03-lakh-crore estimate.
• Operating profit fell 21% to Rs 16,875 crore.
• Operating margin widened to 19.1% from 13.6%.
• Gross refining margins—what RIL earns for refining one barrel of crude oil—dropped to $6.3 per barrel.

Global fuel demand fell sharply during April-June as a result of lockdowns across countries to curb the Covid-19 pandemic. Lower demand for refined products led to a decline in output by refineries. In India, too, demand for petrol and diesel fell in April and most of May.

While RIL, owner of the world’s largest oil refinery, pushed exports to offset that impact, profitability was hit due to significantly lower refining margin. Besides, drop in crude oil prices also led to an inventory loss of Rs 1,637 crore.

RIL’s petrochemicals unit, which sells most of its products domestically, was hurt by lower demand despite cheaper raw materials. Both its legacy units—refining and petchem—continue to face the overhang of large global oversupply, according to JPMorgan.

• Revenue from the refining business fell 54% to Rs 46,642 crore.
• Revenue from petchem business fell 33% to Rs 25,192 crore.

The retail business, too, struggled as half of its stores were shut during the lockdown. Consumer electronics and fashion retail operations were suspended fully in April and partially in May and June. Footfalls in retail stores fell 57% during the quarter, Dinesh Thapar, Chief Finance Officer of Reliance Retail said in the post-earnings conference.

Mukesh Ambani’s telecom unit Reliance Jio Infocomm Ltd., however, made up for lost ground, helping the company stay profitable. The telecom unit’s profit rose 8.1% sequentially on the back of tariff hikes and subscriber additions.

The telecom venture is key for Ambani’s plan to transform Reliance Industries. Asia's richest man recently raised over Rs 1.5 lakh crore by selling stakes in Jio to global investors like Facebook Inc., Google, Intel Corp. and even sovereign wealth funds of Saudi Arabia and Abu Dhabi.

Not only will that help RIL become net debt-free before 2021, but it will also place him in a strong position to upend online retail, content streaming, digital payments, education and health care. That, in turn, allows him to shift RIL’s dependence on legacy businesses like refining to his consumer units.

Shares of RIL closed 0.6% higher ahead of the results, while the benchmark BSE Sensex fell 0.88%.