Several significant announcements have accompanied RIL’s March 2020 quarter results declaration. One, the massive size of the rights issue — ₹53,125 crore — in the ratio of one rights share for every 15 existing shares should give the company’s debt reduction plan a strong boost. The rights issue price of ₹1,257 a share is at a discount of about 14 per cent to RIL’s current stock price of ₹1,467 — this should see good participation from public shareholders. The promoters who own 50.03 per cent stake in the company will be subscribing to their full entitlement of the rights issue and have said that they will also subscribe to all the unsubscribed portion — this could see their shareholding in the company rise. With the rights issue, RIL's equity base will expand by about  7 per cent, but dilution of earnings should be mitigated by fall in interest cost due to debt reducation.

Capital-raise

The rights issue, along with the recent deal to sell about 10 per cent in Jio Platforms to Facebook for ₹43,574 crore helps the company’s plan to become net-debt free by March 2021. Its net debt as on March 2020 is about ₹1.6 lakh crore. RIL plans to complete capital raise of over ₹1.04-lakh crore by the June 2020 quarter — this will include the rights issue, Facebook investment and the previous investment by BP. Also, other global investors have also expressed interest in buying stake in Jio Platforms.

Significantly, RIL also said that the due diligence by Saudi Aramco to buy 20 per cent in the oil-to-chemicals business is on track. Given the crash in oil prices, there was increased scepticism about this deal that was supposed to bring in about ₹1-lakh crore. In this context, RIL’s announcement of its plan to carve out the oil-to-chemicals business holds significance. Seen together, all these measures should assuage concerns about RIL’s debt reduction plans in the face of the turmoil in the oil market, even if the Aramco deal is delayed or does not eventually go through. The company’s debt-to-equity ratio is 0.74 times.

The March quarter consolidated profit of RIL fell about 37 per cent y-o-y to ₹6,546 crore. This was mainly due to the company providing for non-cash inventory holding losses during the quarter of ₹4,245 crore due to the crash in oil prices impacting inventory valuation. But for this, RIL managed to post profit growth of 3.7 per cent y-o-y to ₹10,813 crore.

A strong show by the digital business (operating profit up 54 per cent y-o-y) and a good showing by the retail business (operating profit up about 20 per cent y-o-y) and refining business (operating profit up about 28 per cent) helped offset the significant decline in profit (about 43 per cent) in the petrochemicals business. But the Covid-19 related disruption and crash in prices of petro-products may hurt the refining, petchem and a good portion of the retail business in the June 2020 quarter and beyond.

Interestingly, RIL has identified ‘financial services’ as a separate business segment from the March quarter.

There could be an increased thrust in this segment, going forward.

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