Reliance Industries Ltd positively surprised everyone with the kind of numbers it posted for Q3-FY'16. I was myself expecting a Net Profit number of between Rs.6800 to 7000 crores for the quarter, but the company delivered Rs.7290 crores!! The product prices continued to fall during Q3, thanks to further downward movement in Crude Oil prices. But Reliance Industries seems to have clearly managed to bring down it's raw material prices even more, which has led to a sharp improvement in it's margins. Reliance Industries reported an improvement in it's EBITDA margin of just over 250 bps in Q3 compared to Q2 of this fiscal. Some part of the benefit could also be due to the commissioning of certain projects both on Refining side as well as Petrochemicals side.
Amongst the two segments, the Refining business is clearly the brighter shining star in RIL's portfolio. The actual EBIT from Refining business has double in Q3 this fiscal compared to the same quarter in previous fiscal. This is a very very big thing, even overshadowing the fact that the Petrochemicals business too posted a near 30% growth in actual EBIT, which in itself is a very positive thing. The charts above show the T-T-M progress in EBITs of the two most important business segments for Reliance Industries.
With the mammoth Refining & Petchem CAPEX cycle coming to an end over the next 3-4 quarters, there is a possibility of further improvement in margins from these 2 businesses. But the Q3-FY'16 numbers itself were so good that even if the company manages to post same kind of numbers for the next few quarters, it will still seem to be very good performance. We could see some fluctuations in numbers depending on sharp Crude price movements & corresponding Crude sourcing for the company. But the company has done well till now to use the Crude price movements in it's favour. Another small factor that is boosting the company's margins slightly is the increased demand locally, leading to increased allocation for local markets. Reliance already has got 750 of it's own Fuel Retail centers operational and more are joining with every passing month. We can expect this number to double over the next 12 months or so.
Amongst the two segments, the Refining business is clearly the brighter shining star in RIL's portfolio. The actual EBIT from Refining business has double in Q3 this fiscal compared to the same quarter in previous fiscal. This is a very very big thing, even overshadowing the fact that the Petrochemicals business too posted a near 30% growth in actual EBIT, which in itself is a very positive thing. The charts above show the T-T-M progress in EBITs of the two most important business segments for Reliance Industries.
With the mammoth Refining & Petchem CAPEX cycle coming to an end over the next 3-4 quarters, there is a possibility of further improvement in margins from these 2 businesses. But the Q3-FY'16 numbers itself were so good that even if the company manages to post same kind of numbers for the next few quarters, it will still seem to be very good performance. We could see some fluctuations in numbers depending on sharp Crude price movements & corresponding Crude sourcing for the company. But the company has done well till now to use the Crude price movements in it's favour. Another small factor that is boosting the company's margins slightly is the increased demand locally, leading to increased allocation for local markets. Reliance already has got 750 of it's own Fuel Retail centers operational and more are joining with every passing month. We can expect this number to double over the next 12 months or so.
Reliance Retail & upcoming Jio launch:
Reliance Retail did spring a small surprise during the Q3, having crossed the Rs.6000 crores turnover mark for the first time. It was a sharp Q-o-Q jump of 20%. At the end of Dec'15, the T-T-M Revenues from Reliance's Retail business also crossed the Rs.20,000 crores mark with a 7% Q-o-Q jump. All this even before the launch of e-commerce platform of the company, which is expected to happen over the next 2-3 quarters, alongwith Jio's commercial launch. Just last week Reliance Retail has started selling Jio LYF branded handsets through it's own outlets including Reliance Digital, Digital Express and Express Mini outlets. In the coming weeks, Reliance Retail will also start selling these handsets via 1.2 lakh small retailers spread across the country. The sale of handsets will only pick up speed only after Jio's commercial launch of 4G services. Reliance Retail will use these distribution channels to sell not just LYF branded handsets, but will also supply the small retailers with handsets of other popular brands. Reliance Retail could become the one-stop-supply-source for many of these small retailers & could also integrate them with it's upcoming e-commerce platform.
The best part about Reliance Retail's progress is that the handsome growth is not coming at the cost of profitability. Even though the EBIT numbers are not big, but the important point is that the EBIT number is positive, which many other large retail chains are struggling for. Even the large e-commerce platforms are still burning cash. Going forward there are many more growth avenues for Reliance Retail, some of which I have highlighted above. This is also one business which will grow much more in size in the coming years, though it may not add too much to the company's profits, but still will play an important role in increasing presence in Reliance's consumer-facing businesses.
I have already highlighted the potential of Jio's 4G & Broadband business in my earlier posts related to Reliance Industries. Hence I won't repeat it again here. The media reports doing the rounds currently suggest a commercial launch in March/April period. Let's hope these reports finally do turn out to be true.
I have already highlighted the potential of Jio's 4G & Broadband business in my earlier posts related to Reliance Industries. Hence I won't repeat it again here. The media reports doing the rounds currently suggest a commercial launch in March/April period. Let's hope these reports finally do turn out to be true.
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