Jio, petrochemicals power RIL's Q3 show, net profit rises 25% to Rs 94.2 bn

Jio logs first net profit of Rs 5 bn in December quarter

Oil-to-telecom conglomerate Reliance Industries Ltd (RIL) on Friday reported a 25.1 per cent rise in net profit for the October-December 2017 quarter with higher profitability in petrochemicals and its telecom venture Jio reporting its first profit of Rs 5.04 billion.

The Mukesh Ambani-led conglomerate, at a consolidated level, posted a net profit of Rs 94.23 billion during the quarter under review, as against Rs 75.33 billion during the quarter ended December 2016.

The consolidated net revenue of the company increased by 25.7 per cent during the third quarter of 2017 to Rs 998.10 billion, as against Rs 794.08 billion during the corresponding period in 2016. 

The petrochemicals segment, with a higher capacity and better margins, accounted for 42 per cent of the profit before interest and tax against 34.9 per cent in the December 2016 quarter. Refining segment profit was at Rs 61.7 billion, nearly the same level as a year ago. 

“We have a good story; Jio has turned net profitable in the second quarter of operations itself. From an energy business standpoint, 2018 will be another year of 1.3 million barrels per day growth (globally),” said V Srikanth, joint chief financial officer, Reliance Industries.

RIL’s telecom business, Jio, reported a net profit of Rs 5.04 billion, against a loss of Rs 2.71 billion reported in the September ended quarter.

The company’s December quarter performance may not be comparable to its performance in the corresponding quarter last year. “Jio’s profitability is coming from the addition of more subscribers. With more subscribers our economies of scale are improving,” said Anshuman Thakur, head of strategy, Jio. The telecom venture’s debt stood at Rs 520 billion, with the equity component at Rs 1 trillion. 

RIL Chairman and Managing Director Mukesh Ambani said in a statement: “I am happy to share record-setting consolidated quarterly earnings to mark the 40th anniversary of Reliance’s listing in January 1978. Fittingly, this quarter marks the culmination of our petrochemical expansion projects and the first positive net profit contribution from our newest business line — digital services.” 

The digital services segment houses the Jio 4G telecom business. 

The company outperformed street expectations. In a Bloomberg poll, nine analysts estimated a consolidated net profit of Rs 84.96 billion.

On capital expenditure (capex) in the December quarter, company executives added, the company spent about Rs 170 billion, of which Rs 70 billion was spent on Jio, Rs 60 billion on the petroleum and petrochemical business, and Rs 20 billion on its retail segment. The company expects capex for the March quarter to be in the same range as the quarter under review.

Srikanth said the company expected cash flows to improve significantly and the debt would be reduced. 

“Cash flows will be stronger in the next financial years, there will be positive free cash flows and this by definition will mean debt will keep going down,” he said. 

Segment-wise, the gross refining margins (GRM) increased to $11.6 per barrel in the third quarter, compared to $10.8 per barrel during October-December 2016. GRM is the difference between the value of goods produced by an oil refinery and the price of the raw material used in manufacturing it.  The company said in a statement the increase in consolidated revenues reflected a robust growth rate of 116 per cent in the retail business and continued enhancement in Jio’s wireless operations.

It said Jio had continued its strong subscriber growth trend with gross additions during the quarter of 27.8 million, as against 19.5 million in the trailing quarter. Jio had 160.1 million subscribers at the end of December 2017.  Revenue for the oil and gas segment increased by 34.2 per cent year-on-year to Rs 16.31 billion due to the commencement of coal-based methane production and higher oil and gas price realisation. 

However, domestic production was lower at 19.7 billion cubic feet equivalent (BCFe), down 15 per cent compared to last year, whereas production in US shale operations declined by 14 per cent to 32.4 BCFe.

Earnings before interest and tax (EBIT) in the petrochemicals segment were at their highest at Rs 57.53 billion against Rs 33.26 billion, a jump of 73 per cent supported by strong volume growth, higher margins for polypropylene, and downstream polyester products.

Sharing a timeline for the commissioning schedule for its petcoke gasification project, the company said four of the 10 gasifiers would be operational in the March quarter and the remaining in the first quarter of the next financial year. The company expects benefits from the gasification project to start showing in FY18-19.