NEW DELHI: Though its legacy business — oil-to-chemical (O2C) operations — continues to rake in big moolah for Reliance Industries, it has made rapid progress in expanding its new age businesses.
The O2C segment accounted for 63% of the group’s total income in second quarter, and revenue from this business increased by a whopping 58.1% Y-o-Y to Rs 120,475 crore during the quarter. However, Reliance’s new businesses are slowly but surely coming up on their own.
The other Reliance vertical that witnessed surge in profit and revenue during the quarter was its fast-growing retail empire. Reliance Retail’s gross revenue during the quarter was recorded at Rs 45,426 crore, a growth of 10.5% Y-o-Y and higher than Pre-Covid period. Net Profit for this segment during the quarter came in at Rs 1,695 crore, higher by 74.2%. This growth in topline and bottomline came even as footfalls in the quarter only recovered to 78% of pre-Covid levels. The company reported adding 813 new stores in the quarter, showing confident in future growth prospect. Additionally, its digital and new commerce platform grew 2.4x Y-o-Y.
On the other hand, Reliance Jio’s performance was a bit underwhelming. Even as the platform’s net profit rose 23.4% to Rs 3,728 crore in (Q2FY22) and its ARPU (average revenue per user) improved 3.7% to Rs 143.6 per subscriber per month, on a year-on-year basis, it lost 11.1 million customers during this quarter on a sequential basis.
This is the first time that the company has reported a sharp sequential drop in customer base. The country’s largest telecom operator has blamed “Covid-19 impact” for this loss. At the end of Q2, Jio’s subscriber base stood at 429.5 million.
The Mukesh Ambani-led Group on Friday reported consolidated profit of Rs 15,479 crore, a surge of 46% year on year (YoY) for the second quarter of FY2021-22 (Q2FY22). Its consolidated gross revenue for the quarter jumped 49.2% YoY to Rs 1,91,532 crore and consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) grew by 30% to Rs 30,283 crore.
“Reliance came out with better than expected numbers for Q2FY22. Revenue rose sharply aided by 12% YoY higher throughput from refinery business (up sequentially also considering the unplanned shutdown of fluid catalytic cracking unit in Q1FY22) and higher product prices due to crude price rise,” said Deepak Jasani, Head of Retail Research, HDFC Securities.
“Retail business came back strongly both on YoY and QoQ basis. Profitability improved due to better operating leverage, higher pass through of product prices and better performance of retail and oil & gas businesses. Finance costs fell due to lower borrowings post the fund raise in FY21. Net outstanding debt is now zero or negative,” said Jasani.
He added, “The series of acquisitions in the new energy and material businesses will help create fresh triggers for top and bottom line growth though with a lag of a few quarters. However this will help accelerate the transformation process from a commodity player to a new age diversified company and enable getting higher valuations.”
Giving a push to its new age businesses, RIL made record number of acquisition/ investments/partnerships in Q2FY22. The two businesses where maximum strategic updates took place were the recently formed Reliance New Energy Solar Ltd (RNESL) and Reliance Retail Ventures Limited (RRVL).
RNESL first invested $50 million to acquire 42.3 million shares of preferred stock in Ambri Inc, an energy storage company based in Massachusetts, USA. It then signed a cooperation agreement with Denmark-based Stiesdal A/S (Stiesdal) signed for technology development, and manufacturing of Stiesdal’s HydroGen Electrolyzers in India.
It also entered into an agreement with NexWafe GmbH (NexWafe), a company whose patented technology is expected to cut wafer production costs, making solar photovoltaics the lowest-cost form of renewable energy available.
The big boost to its solar ambition came when Reliance announced acquisition of 100% shareholding of REC Solar Holdings AS (REC Group) from China National Bluestar (Group) Co Ltd., for an enterprise value of $771 million. The acquisition of REC will help Reliance with a ready global platform and the opportunity to expand and grow in key green energy markets globally, including in the US, Europe, Australia and elsewhere in Asia.
RNESL is also acquiring 40% stake in Sterling & Wilson Solar. These investments are in line with Ambani’s plans of investing Rs 75,000 crore over the next three years in clean energy. Reliance has set a target to build solar capacity of at least 100 gigawatts (GW) by 2030, accounting for over a fifth of India’s target of installing 450 GW by the end of this decade.
“Given the sufficiently large opportunity in the Indian solar segment, policy support via PLI (Production Linked Incentive) scheme, imminent customs duty hike for Chinese imports, and the proven execution capabilities of RIL, this segment promises to rapidly ramp up to be a material contributor to the business for RIL,” analysts at Centrum Broking said in a recent note.
They expects the company to generate EBITDA of at least Rs 4000 crore by FY24E from this segment.
In the retail space, Reliance entered into a master franchise agreement with 7-Eleven, Inc for the launch of 7-Eleven convenience stores in India. It also acquired 96.49% stake in subscriptions based daily micro-delivery service provider Milkbasket during the quarter.
More recently, it took 52% equity stake in Ritika Pvt Ltd that owns Ritu Kumar, Label Ritu Kumar, RI Ritu Kumar, aarké, and Ritu Kumar Home and Living. Beside Ritu Kumar, Reliance also took a 40% stake in fashion designer Manish Malhotra’s eponymous brand. Other notable deals include taking sole control of local search engine platform Just Dial and acquiring home décor business of Creative Group under the brands ‘Portico’ and ‘Stellar Home’ on a slump sale.
Analysts also feel that RIL’s better than expected quarterly result will receive a thumbs up from investors. “Sharp surge in oil prices has benefited the company in a good way. As far as JIO and retail arm is concerned, company has witness stellar performance as earnings came close to pre-pandemic levels on higher footfalls in retail stores along with higher ARPUs for telecom business,” said Gaurav Garg, Head of Research, CapitalVia Global Research. “In my opinion, stock might open with a gap-up of 2%-2.5% on Monday morning,” Garg added.
Brokerage firm Nomura recently downgraded RIL to ‘neutral’ from ‘buy’ citing rich valuations after the recent run-up. However, it lifted its target price on the stock to Rs 2,850 from Rs 2,400. On Friday, the stock had closed marginally higher at Rs 2,627.05 a piece.
Growth story
Consolidated gross revenue for Q2 FY22 jumped 49.2% YoY to Rs 1,91,532 crore
Oil-to-chemical segment revenue for the quarter increased by 58.1% Y-o-Y to Rs 120,475 crore
Reliance Retail’s gross revenue recorded growth of 10.5% Y-o-Y at Rs 45,426 crore
Plan to invest Rs 75,000 cr in clean energy over 3 yrs
Announced acquisition of 100% shareholding of REC Solar Holdings AS (REC Group) from China
National Bluestar (Group) Co Ltd., for an enterprise value of $771 mn
RNESL is acquiring 40% stake in Sterling & Wilson Solar
Latest deals
Pact with 7-Eleven for opening of stores
52% equity stake in Ritika Pvt Ltd
40% stake in Manish Malhotra’s brand
Acquisition of Milkbasket