India’s largest company by market capitalization, Reliance Industries, declared their third-quarter results for FY21. Reliance announced consolidated revenue of Rs 1,37,829 crore, 7.4% higher than what they reported the previous quarter. Even though the revenue increased only marginally from Q2 to Q3, the net profits increased by a massive 40%. How did Reliance achieve such a feat? How did all of their segments perform? Let’s have a look.

Digital Services

Jio declared a consolidated operating revenue at Rs 19,475 crore as compared to Rs 18,496 crore reported in the previous quarter. The net profits also witnessed a QoQ 15% rise to Rs 3,486 crore. As of December 2020, the total customer base increased to 410.8 million after the addition of 25.1 million users. Average Revenue Per Unit (ARPU) increased to Rs 151 from Rs 145 in this quarter. By adding more customers and making more money from each customer, Reliance Jio just had nowhere to go but higher.

Source: Reliance Q3 Investor’s presentation

They had spread their 4G LTE network to new places to serve people with better connectivity. Total data traffic during the quarter increased by almost 5% to reach 1,586 crores GB. The Covid-19 pandemic has forced most of us to get on the digital platforms. JioMeet crossed 15 million users by adding more people from October to December. This digital platform for online meetings is now being used by many large enterprises, healthcare companies and government institutions. 

The chairman and MD of Reliance, Mukesh Ambani, was vocal about the future success of Jio and India together. He said, “India is today among the leaders driving the Digital Revolution in the world. In order to maintain this lead, Jio will continue to accelerate the rollout of its digital platforms and indigenously developed next generation 5G stack and make it affordable and available everywhere. Jio’s 5G service will be a testimony to the vision of AtmaNirbhar Bharat.”

Reliance Retail 

The retail segment of the company was one of the hardest hit in Q1 FY21 due to nation-wide lockdown. But as the restrictions eased up, the retail arm of Reliance kept growing. As of December 2020, 96% of stores of the company are in operation. By the end of the second quarter of this year, only 52% of the stores were operational. Even though more stores were allowed to open, overall footfall remained at 75% of Pre-COVID level. On a positive side, Fashion & Lifestyle performance has surpassed the pre-COVID levels. 

Source: Reliance Q3 Investor’s presentation

The revenue of this segment reported is Rs 37,845 crore, 8% lower when compared to the previous quarter. The main reason for this has been the transfer of Petro Retail dealership to RBML entity (Reliance-BP Joint Venture). Also, we can expect the segment to run at full pace when a few more of the Covid-19 restrictions are eased up. Even though with lower revenue, net profit has jumped by 88% on QoQ, from Rs 973 crore to Rs 1830 crore. The most amazing contribution from Reliance Retail is that they have created 51,000 new jobs created during the COVID period. This is when other business are actually laying off their workers. 

Oil-to-Chemical (O2C)

The Oil-to-Chemical arm of Reliance continued on the path of resurgence which they started in the second quarter. Total revenue increased by 10% QoQ from Rs 76,184 crore to Rs 83,838 crore. EBITDA, which is Earnings before Interest Tax Depreciation and Amortization, reported a rise of 10.3% QoQ to Rs 9,756 crore. Last quarter, this number was at Rs 8,841 crore.  

Although the numbers have risen as compared to the previous quarter, yearly comparison gives us a completely different outlook. Reliance generated total revenue worth Rs 1,19,121 crore in the same quarter last year. That means, on a year-on-year basis, their revenue has fallen by a massive 30%! Not only this, their EBITDA has taken a huge hit of 28% in one year. Yes, the demand for different fuels are yet to reach the pre-covid levels but such a hefty fall in their core business was not expected at all.

Reliance is willing to incubate New Energy platforms. They aim to maximize downstream production, reduce transportation fuels and create clean and green energy fuels which can aid the country to run in the long term. Thus, this signals that they want to shift from their core business? A few months back, we did discuss Mukesh Ambani’s ambition of making a sustainable India. Does that mean that this giant company wants to move away into a new business? Do they wish to be known as a tech company? You can read more about here.

Reflecting on the future of sustainable energy, Mukesh Ambani said, “I am especially pleased that the world is now closing ranks for a strong global action on Climate Change. This gives Reliance the right opportunity to accelerate our own ambitious New Energy and New Materials business wedded to the vision of clean and green development. In line with this vision, our Oil-to-Chemicals (O2C) business has formally reorganised its reporting segments to reflect our new strategy and management matrix for this enterprise.”

To Sum Up

If you are a Reliance investor, you might be content with their performance. A company facing a dip in revenues has still managed to generate larger profits. This speaks how well they have paid attention to cutting their cost. A perfect example of operational efficiency!

We think that this can be another year where Reliance touches higher highs. If the government allows the roll-out of 5G in 2021, Reliance is at the best spot to take advantage in the Indian telecom sector. Reliance stated that they have already started advance tests to prepare its 5G network. They are only waiting for the government’s approval to the auction of spectrum. 

But it seems like Reliance has not been able to give enough focus to their oil-to-chemicals segment. If any company is not able to generate good numbers in its core business, doubts are bound to arise in their investor’s mind.

What are your opinions on Reliance? Do you think that they will grow even faster in 2021? You can find Reliance Q3 FY21 results here. You can find the investor’s presentation here