Reliance Industries Q2 net margin expands to 9.12% despite lower profits

Reliance Industries sales picked up sharply from the COVID lows in the Jun-20 quarter

Oct 30, 2020 08:10 IST India Infoline News Service

Reliance Industries reported fall of 24.25% in top line sales revenues overall for the Sep-20 quarter at Rs1,16,195cr. While the sales have picked up sharply from the COVID lows in the Jun-20 quarter, the sales value normally gets depressed when the crude prices fall. On a yoy basis, the Brent prices are almost 40% lower on an average.

The operating profits for the quarter ended Sep-20 was 28.8% lower on a yoy basis at Rs12,319cr. The net profits for the Sep-20 quarter lower by just about 6.6% at Rs10,602cr. RIL has managed to hold its bottom line above the Rs10,000cr mark through the COVID period even as digital and retail are playing a larger role in the top line.

This had an overall impact on the margins of Reliance Industries. For the Sep-20 quarter, the operating profit margins or OPM was down 68 bps at 10.60%. However, the net profit margins or NPM for the quarter improved by 172 bps at 9.12%. This improvement was largely on the back of achieving profits at lower revenue base.

RIL top line numbers have been subject to the changes in crude oil prices as it impacts the refining margins as well as the inventory translation.

Financial highlights for Sep-20 compared yoy and sequentially

Reliance Industries
Rs in Crore Sep-20 Sep-19 YOY Jun-20 QOQ
Revenues 1,16,195 1,53,384 -24.25% 91,238 27.35%
Operating Profit 12,319 17,296 -28.78% 10,567 16.58%
Net Profits 10,602 11,352 -6.61% 13,248 -19.97%
Diluted EPS (Rs) 14.68 18.47 20.63
OPM 10.60% 11.28% 11.58%
Net Margins 9.12% 7.40% 14.52%

Key takeaways from the Sep-20 quarter results

  • For the Sep-20 quarter, the biggest contributor to overall revenues continues to be oil refining. Out of the four major pockets of business that RIL now focuses on, the contribution to revenues was as under. Oil refining accounted for the bulk of 38% of the total revenues for the quarter following by retail segment generating 24% of the total revenues. In addition, petchem generated 18% while digital generated 14%. These four segments collectively accounted for 94% of total revenues.
  • The picture gets a lot more interesting when you look at the EBITDA contributions. Out of the total EBITDA figure of Rs20,885cr, Digital accounted for 40% following by petchem at 29%. Refining contributed just about 14% of EBITDA while retail contributed another 10%. Clearly, digital is making its presence felt in the EBITDA game in the quarter.
  • In the latest quarter debt equity ratio fell sharply from 0.72 last year to 0.46 in Sep-20 after Reliance prepaid long term debt to the tune of Rs54,198cr during the latest quarter. That is the reason why the sharp fall of the debt service coverage to 0.23 looks a tad out of place. This should stabilize in the coming quarters. It is one more step towards their zero-debt target by Mar-21.

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