The nearly 80 per cent rally in the stock of Reliance Industries (RIL) over the past year has been predicated largely on two hopes – path to profit of the telecom business (RJio), and healthy profit growth in the mainstay petrochemicals and refining segments thanks to big capacity expansions and upgrades.
The December 2017 quarter results of the company vindicate these expectations with a robust 25 per cent y-o-y profit growth overall to ₹9,423 crore.
Rapid subscriber additions and sharp cut in interconnection usage charges helped RJio post its first quarterly net profit (₹504 crore) within 18 months of launch. This positions the business as one of the key profit drivers for the company in the coming years.
This view is buttressed by the ongoing aggressive expansion plans in the business and the sharp increase in the segment’s operating profit to ₹1,440 crore in the December 2017 quarter from ₹261 crore in the September 2017 quarter when it first achieved profit at the operating level.
The digital business is now RIL’s third largest segment in terms of operating profit and only behind the refining and petrochemicals segments.
The big-ticket expansion of the petrochemicals business that culminated in the December quarter has paid off handsomely, with the segment’s quarterly profit increasing 73 per cent y-o-y to ₹5,753 crore, its highest ever.
This was aided by healthy volume growth and higher margins. This more than offset the marginal dip in profit in the quarter in the refining segment to ₹6,165 crore.
The fall in the refining segment’s profit, despite gross refining margin (GRM) improving to $11.6 a barrel in the December 2017 quarter from $10.8 a barrel in the year-ago period, was due to a dip in crude volumes refined during the quarter. The struggles of the oil and gas exploration business persisted with production challenges both in India and in the US translating into continued losses.
On the other hand, operating profit in the organised retail segment more than doubled y-o-y to ₹487 crore in the December quarter.
The path ahead looks promising with the benefits of expansion in petrochemicals and refining continuing to play out, and telecom and retail poised for healthy growth.