The global disruption caused by the Covid-19 pandemic took a toll on the earnings of India’s largest company by market value in the January-March 2020 quarter. Reliance Industries Ltd (RIL), the oil-to-yarn and retail-to-telecom conglomerate led by India’s richest billionaire Mukesh Ambani, reported a net profit of ₹6,542 crore for the quarter ended March 31, down 37.2% year-on-year.

The decline in profitability reported by RIL, the first in several quarters, was on account of an exceptional loss of ₹4,267 crore registered on account of a non-cash inventory holding loss for the January-March period from a sharp 73% reduction in oil prices through the last quarter of FY20.

RIL’s revenue for the March quarter came in at ₹1.51 lakh crore, down 2.5% year-on-year and 10.6% sequentially. The net profit reported by the company saw a sequential decline of close to 45%. Earnings before interest, tax, depreciation and amortisation (Ebitda) for the period stood at ₹25,886 crore, down 7.6% year-on-year and 0.8% quarter-on-quarter. For the full financial year, RIL’s turnover in FY20 stood at ₹6.59 lakh crore, up 5.4% over the previous fiscal. The net profit after exceptional items stood at ₹39,880 crore; it was at around the same level in FY19.

In view of the impact on business caused by the global outbreak of the novel Coronavirus, RIL said that chairman Ambani had decided to forego his entire remuneration (an annual sum of ₹15 crore) until the company and all its businesses are “fully back to their earnings potential”. Additionally, senior executives of the company will also be taking pay cuts of between 30% and 50% to help tide over this period.

While a sharp reduction in crude oil prices and a reduction in demand impacted RIL’s crude refining and petrochemicals businesses, the non-grocery retail business of the company was impacted due to the nationwide lockdown in India since March 25. RIL’s organised retail business reported a turnover of ₹38,211 crore in the March quarter, down 15.7% quarter-on-quarter, but up 4.2% over the year earlier. Segment EBIT (earnings before interest and tax) declined 13.7% sequentially to ₹2,062 crore (up close to 20% year-on-year).

As in the last few quarters, the out-performer for the company remained its digital services and mobile telephony vertical under Jio Platforms and Reliance Jio Infocomm. The business reported revenues of ₹18,632 crore in the January-March period, up 30% year-on-year and 6.1% sequentially. Operating profit from the business grew 54% year-on-year to ₹4,104 crore. Jio, with a subscriber base of 387.5 million, reported an operating profit margin of 22% in the March quarter, up 340 basis points from the same quarter last fiscal.

“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,” Ambani said in an earnings statement issued after market hours on Thursday. “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.”

Apart from the operational highlights for the quarter, RIL’s earnings statement was also heavy on information pertaining to the company’s debt reduction programme in FY21. For starters, the company, ranked No.1 on the Fortune India 500 list for 2019, said that its board had approved a rights issue of ₹53,125 crore. The company will offer one share for every 15 held by existing investors at a price of ₹1,257 apiece. The promoters of the company, led by Ambani, are fully underwriting the issue and have committed to subscribing even to the unsubscribed portion of the issue, which can potentially see its holding in the company increase.

RIL’s share price rose to ₹1,467.05 on the BSE on Thursday, up 2.86%. The benchmark S&P BSE Sensex rose 3.05% to 33,717.62 points on the same day. After hitting a low of ₹875.65 on March 23, RIL’s share price has gained over 78% since then.

The Mumbai-based company also indicated the possibility of further monetisation of its stake in Jio Platforms, the technology and digital services company that is the principal holding company for Reliance Jio Infocomm, as well as the group’s other digital businesses. Just last week, Facebook picked up a 9.99% stake in Jio Platforms for $5.7 billion. “In addition to the FB (Facebook) investment, the board was informed that RIL has received a strong interest from other strategic and financial investors and is in good shape to announce a similar-sized investment in the coming months,” RIL said in its statement. “With a strong visibility to these equity infusions, the board was informed that RIL is set to achieve net zero debt status of its own aggressive timeline.”

In the first quarter of FY21 itself, RIL expects a capital raise of ₹1.04 lakh crore, including Facebook’s investment in Jio Platforms, the rights issue, and a previous investment announced by BP in RIL’s fuel retailing business. RIL’s total outstanding debt as on March 31 was ₹3.36 lakh crore and the company had cash and cash equivalents to the tune of ₹1.75 lakh crore.

Furthermore, in a possible move to prepare for an equity infusion into its O2C business by Saudi Aramco, RIL also said that it would be approaching the National Company Law Tribunal to carve out the O2C business as a separate entity called Reliance O2C Ltd. This company would comprise RIL’s refining, petrochemicals, fuel retail, and aviation fuel businesses. RIL said on Thursday that despite the Covid-19 crisis, Saudi Aramco’s due diligence of RIL’s assets was going on as planned ahead of the latter’s planned 20% stake sale in the O2C business. Both parties were “committed and actively engaged”, the company said.

Spinning off the O2C business into a separate company could serve a couple of other purposes for RIL as well. One, it allows RIL to rope in other strategic and financial investors into the O2C business, perhaps leading to an eventual public issue. Second, with the global energy market expected to remain subdued for a long period of time, as the world takes time to recover from the fallout of the Covid-19 pandemic, spinning off the refining and petrochemicals business can also help insulate RIL’s other businesses like retail and telecom from potential negative sentiments.

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