Reliance Industries Q2FY21 Results Analysis

Why Reliance Industries Stock Price is falling?

Introduction

Yesterday Reliance Industries stock price plummeted 9% to INR 1877 and down 26% from its 52 week high of INR 2368.  Also recently, company reported its Q2FY21 results. Company’s revenue and profitability declined 24% and 6.6% on YoY basis. Let us analyze company’s quarterly results and also take a look at the reasons behind the recent fall in stock price.

Reliance Industries Q2FY21 Results Analysis

Reliance Industries Consolidated Results

• Company’s revenue posted decline in growth by ~22%, however it has improved sequentially on QoQ basis.
• EBITDA has declined on YoY basis, however decline in EBITDA is lesser than that of revenues. This indicates that company has decent operating efficiencies.
• Company has paid its high cost liabilities in this quarter and hence there is a decline in finance costs on QoQ basis.
• As company liquidated its DTA, it  did not bear any net tax as such.
• However, net profit has declined 6.6% on YoY basis and 24% on QoQ basis. This is mainly because company has earned exceptional gain of INR 4,966 crore in previous quarter. Excluding this gain, company has registered 28% YoY growth in Net Profit.

Consolidated Revenue Analysis

• Consolidated revenue jumped 27.2% on QoQ basis mainly due to :
  1. Higher Price Realization in Oil to Chemical segment
  2. Revenue of Petrochemical segment increased by 17.8% QoQ with higher price across product portfolio and higher volumes
  3. Retail : Strong Recovery in Retail operations – Revenue jumped 30% QoQ
  4. Jio : Sustained Subscribers Addition with improvement in ARPU QoQ (Rs.145 from Rs.140 in last quarter) Digital Services Business : Revenue up 7.2% QoQ
  5. Overall telecom and retail business have huge opportunities and will generate more revenues in future.

Consolidated EBITDA Analysis

• Consolidated EBITDA increased by 7.9% QoQ mainly due to :
  • Strong revival in Oil to Chemical earnings with rebound in Petrochem and Oil product demand
  • Petrochem segment EBITDA increased by 34.6% QoQ primarily on account of higher production volume and high volume placement in domestic market
  • Strong Performance by Consumer Business : contributes 49.6% of total consolidated EBITDA for Q2 FY21 quarter
    • Consumer EBITDA up 16.5% QoQ
  • Retail : Strong recovery in Reliance Retail with increased footfalls and new store openings EBITDA at Rs.2,009 Cr up 85.5% QoQ
  • Jio : Record quarterly EBITDA for Jio (Rs.8,345 Cr) up 7% QoQ
    • Consistently Improving EBITDA Margins (43.1% in Q2 FY21)
    • Continued Subscribers Momentum

• Consolidated EBITDA Mix

Petrochemical Business EBITDA contribution has declined on QoQ basis, while that of digital services has increased significantly.

Equity Raised – strengthened capital structure and earnings

• Largest ever Capital Raise in India through Rights Issue & Asset Monetization :
  • Funds Inflows of Rs.1,46,723 Cr reflecting in balance sheet as on Sept-20
• Inflows are entirely used to retire debt & other liabilities which helped to reduce the Finance Cost by 10% QoQ, (partially offset by higher charges in pre-repayment of debt)
• However, entire benefit of lower interest cost is yet to be reflected in subsequent quarters.

Balance Sheet

• Company is continuously decreasing its gross debt since Mar’20 and is able to increase its cash balances as well.
• This indicates that there is surplus liquidity with the company.
• As of Sept’20 , company is net debt free from INR 1.61 lakh crore debt in Mar’20.
• As company has is net debt free, its Enterprise value has increased from $114 bn to $ 200 bn, with market cap growing by ~2 times from March’20 levels.
• Reliance Industries become first Indian company to cross $200 billion market cap milestone

Why Reliance Industries stock price is falling down?

• As seen, Reliance Industries stock price has fallen by ~9% in one trading session on 2^nd November’20.
• The recent fall in stock price was mainly because of short term events like –
  • Muted performance reported on YoY in recent quarter
  • Legal tussle with Amazon over Reliance – Future group deal
  • Rumours about deteriorating health of Mr. Mukesh Ambani
• However despite the short term headwinds, company has strong business outlook for its retail and telecom business and the recent fall ideally should not be a concern from long term perspective.