RIL’s Q3 net profit stays flat at ₹15,792 crore – retail and Jio deliver, while O2C drags due to weak demand

• Oil-to-data giant Reliance Industries reported a net profit of ₹15,792 crore in Q3, slightly above analyst estimates.
  
• Revenue contribution from the oil-to-chemical segment, which is Reliance’s bread and butter, continued to decline as a percentage of overall revenue for the third consecutive quarter to 65.6%.
  
• On the other hand, its consumer segments, Reliance Retail and Jio led growth during the quarter, with a top line growth of 18.6% and 20.9% YoY, respectively.
  

Mukesh Ambani-led Reliance Industries reported a net profit of ₹15,792 crore in Q3, slightly above analyst estimates. Reliance’s net profit was up only marginally during the quarter compared to the corresponding quarter last year. Also finance costs and depreciation was higher in Q3FY23. The company’s performance during the quarter was primarily led by the consumer segments of retail and telecom, while the oil-to-chemical segment remained under pressure due to weak demand and downstream margin pressures.

Reliance’s total revenue in Q3 stood at ₹2.2 lakh crore, up 5.1% YoY, beating analyst projections of ₹2.13 lakh crore.

On a sequential basis, the revenue fell 5.3% while profit increased 15.6%.

Reliance’s Q3 FY22 profit was boosted by ₹2,836 crore on account of an exceptional item, namely profit on sale of shale gas. Without this exceptional gain, Reliance’s Q3 FY23 net profit would be up 0.5% when compared to Q3 FY22.

Reliance also announced a fundraising of up to ₹20,000 crore through non-convertible debentures, to be issued via a private placement.

Weak demand and downstream margin pressures weigh on O2C business

Reliance’s bread and butter, the oil-to-chemicals (O2C) business, continued to witness margin pressures and weak demand.

“Downstream chemical products witnessed margin pressure with excess supply and relatively weak regional demand. Our focus remains on operating safely and reliably producing vital fuel and materials for consumers,” said Mukesh Ambani, chairman and managing director, Reliance Industries.

The O2C segment’s contribution to Reliance’s overall revenue continued to decline – falling to 65.6% in Q3, from 68.5% in Q2, and 72% in Q1.

Reliance’s O2C business’ revenue declined when compared to the previous quarter – at ₹1,44,630 crore, it fell short of its Q2 revenue by 9.5%.

The impact of weak demand and downstream margin pressures was visible in the O2C segment’s earnings before interest, taxes, depreciation and amortisation (EBITDA), which increased by only 2.9% YoY to ₹13,926 crore, while the segment revenue increased 10.3% to ₹1,44,630 crore during this period.

Also weighing on the O2C EBITDA was special additional excise duty, which accounted for ₹1,898 crore during Q3.

Reliance Industries’ Q2 in numbers:


Source: Company reports | *includes an exceptional gain of ₹2,836 crore

Finance costs continue to put a lid on the company’s overall performance, with an increase of 36.5% YoY to ₹5,201 crore – something that a previous Business Insider India report highlighted could soon become a problem for high-debt companies.

Retail business continues to beat inflation woes

Reliance’s retail segment delivered healthy growth even as inflation continues to be a problem for many. The retail segment reported a 18.6% YoY growth in revenue to ₹60,096 crore, while its segment net profit grew 6.2%.

Overall, though, since the retail segment’s revenues surged both sequentially and YoY, the EBITDA was higher in absolute terms at ₹4,773 crore.

“Retail business had another quarter of strong progress with more Indians choosing to shop at Reliance Retail stores,” Ambani added.

Reliance also announced that the retail segment’s area of operation has increased to 60.2 million square feet, up from 40 million square feet last year. The company’s total operational stores stood at 17,225 at the end of the quarter.

Overall, Reliance recorded total footfalls of 201 million during the December quarter across all formats and geographies, which is its highest ever. On a YoY basis, the footfalls increased 25.6%.

During the quarter, Reliance Retail launched a new brand called Independence and also acquired beverage brand Sosya, and confectionery brand Lotus Chocolate.

Its digital efforts via JioMart also witnessed a ramp up during the quarter, with the overall catalogue increasing 71% on a sequential basis, while its seller base increased 83% during this period.

Jio delivers modest growth in profit, ARPU and subscribers

The company’s telecom arm, Reliance Jio posted a modest 3.2% sequential increase in its net profit after a moderate September quarter, in line with analyst expectations.

The largest telco in India added 5.3 million new subscribers to its network, taking the total to 432.9 million subscribers, in line with analyst expectations.

Its average revenue per user saw a moderate increase of 0.6% to ₹178.2 from ₹177.2 in the previous quarter, largely on account of a better subscriber mix, according to the company.

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RIL’s Q3 to be a mixed bag: Muted growth seen in O2C, robust performance projected for retail and Jio