Reliance Q4 net down 37.2% as Covid-19 hits energy business

This is the first quarterly fall in profit for RIL over a three-year period, the company stated, attributing the profit fall to inventory losses at its dominant energy business due to a slump in crude prices amid the coronavirus outbreak.

The company, which operates the world’s largest oil refining complex, said on Thursday it wrote down Rs4,245 crore ($565 million).

RIL’s net profit including exceptional items decreased by 37.2 per cent to Rs6,546 crore ($ 0.9 billion). Net profit excluding exceptional items increased by 3.7 per cent to Rs10,813 crore ($1.4 billion).

Revenue for the quarter decreased by 2.5 per cent to Rs151,209 crore ($20 billion). Earnings before interest, taxes, depreciation and amortisation (EBITDA) increased by 7.6 per cent to Rs25,886 crore ($3.4 billion).

RIL’s profit before tax (before exceptional item) decreased by 2.7 per cent to Rs13,490 crore ($1.8 billion) while cash profit increased by 12.8 per cent to Rs18,446 crore ($2.4 billion),

Net profit before exceptional items for the full fiscal (2019-20) stood 11.3 per cent higher at Rs44,324 crore against Rs39,837 crore in the previous fiscal.

Net profit after exceptional items was narrowly (0.1 per cent) higher at Rs39,880 crore against Rs39,837 crore in the previous fiscal.

RIL achieved a consolidated revenue of Rs659,205 crore ($87.1 billion), an increase of 5.4 per cent as compared with Rs625,212 crore in the previous year. Increase in revenue has been primarily on account of higher revenues from the consumer businesses. Digital services business and retail business recorded an increase of 40.7 per cent and 24.8 per cent, respectively, in revenue as compared to previous year. Revenues for the refining and petrochemicals business declined in line with fall in average oil and product prices for the year. 

In a filing with stock exchanges, Reliance said it was accounting for “inventory holding losses in the energy businesses due to the dramatic drop in oil prices accompanied with unprecedented demand destruction due to COVID-19.”

Meanwhile, Reliance’s telecom business Jio continued to see double-digit growth in revenue as it added more subscribers.

Its retail business, which operates 10,000 stores selling groceries, consumer electronics and apparel, reported a modest 4% rise in revenue.

Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries Limited said: “As India and the world grapple with the biggest challenge faced by our generation, I am heartened by the robust response of Reliance to the extraordinary circumstances created by the COVID-19 pandemic.

“I firmly believe that nothing is more valuable in this world than the value of human life — the value of each and every human being, irrespective of their social or economic background.... Reliance is, and will continued to be, guided by this philosophy in India’s battle against the COVID-19 pandemic.” 

“I take this opportunity to also commend the important contribution of all constituents of Indian industry and business to India’s national endeavour to overcome the corona calamity,” he added.

“Our O2C (Oil to Chemicals) businesses delivered sustained earnings due to its integrated portfolio, cost-competitiveness, feedstock flexibility and product placement capabilities. We continue to operate all our major facilities at near normal utilisation levels.  

“Our consumer businesses further strengthened their leadership positions and recorded robust growth on all operating and financial parameters during the year. Both Retail and Jio, continue to work towards providing superior products and services to Indian consumers.

“We are fully committed on our investment plans in our consumer businesses and new initiatives. We are at the doorsteps of a huge opportunity and our rights issue and all other equity transactions will strengthen Reliance and position us to create substantial value for all our stakeholders.

“Indeed, converting the corona crisis into a new opportunity, Reliance will innovatively step up its plans to create much greater societal and shareholder value. I am confident that our India and Reliance will emerge stronger in the post Covid-19 world.” Corona Haarega, India Jeetega!”

The board of Reliance Industries at its meeting held on Thursday recommended a dividend of Rs6.50 per equity share of Rs10 each for the financial year ended 31 March 2020.

The board also approved issuance of equity shares of Rs10 each of the company of an issue size of Rs53,125 crore by way of ‘rights Issue’ to eligible equity shareholders of the company as on the record date. The terms and conditions of rights Issue will be decided by the board or a duly constituted committee of the board and will be subject to applicable laws and regulatory/statutory approvals as may be required. 

The price for the rights issue has been determined at Rs1,257 per share and the share ratio at 1:15.

The proposed rights issuance will be the first by RIL in three decades. The issue will be structured as partly paid shares and will enable shareholders to phase out the outlay on their investment over a period of time. Diversified earnings streams and conservative balance sheet place Reliance at an advantaged position to face the ongoing macro challenges. 

S&P and Moody’s have both reaffirmed Reliance’s investment grade ratings. Transformative strategic investments in consumer facing business have firmly re-positioned Reliance as India’s preeminent consumer/technology company. Jio and Retail platforms underpin Reliance’s participation in the next leg of value creation in India. As new strategic investors look to partner and add value to these growth engines, the rights issue enables all shareholder to participate in growth of consumer/technology business.

The promoters have confirmed that in addition to subscribing to their aggregate entitlement in full, they will also subscribe to all the unsubscribed portion. This demonstrates their deep conviction in Reliance’s future prospects and outlook.

The board also approved a scheme of arrangement for transfer of O2C Undertaking (as defined in the scheme) of the company to Reliance O2C Limited as a going concern on slump sale basis for a lump sum consideration equal to the income tax net worth of the O2C Undertaking as on the appointed date of the scheme. O2C undertaking of the company comprises of entire oil-to-chemicals business of the company consisting of refining, petrochemicals, fuel retail and aviation fuel (majority interest only) and bulk wholesale marketing businesses together with its assets and liabilities. The scheme is subject to necessary statutory / regulatory approvals under applicable laws, including approval of National Company Law Tribunal.

The board was also informed that the company expected to complete the capital raising programme totalling over Rs1,04,00 crore by Q1 of the current financial year. This includes the investment by Facebook in Jio Platforms, the upcoming rights issue and the previous investment by British Petroleum in FY2019-20. 

In addition to the FB investment, the board was informed that RIL has received strong interest from other strategic and financial investors and is in good shape to announce a similar sized investment in the coming months. This establishes the attractiveness of Jio Platforms to the world and is a strong validation of RIL’s capability to conceive large-scale disruptive Greenfield businesses. With a strong visibility to these equity infusions, the board was informed that RIL is set to achieve net zero debt status ahead of its own aggressive timeline.

In spite of the Covid-19 crisis and the lockdowns, the due-diligence by Saudi Aramco for the planned investment in the O2C business is on track as both the parties are committed and actively engaged, RIL said.