When the pandemic hit last year, there were worries about Reliance Industries’ businesses (especially in refining and retail) being impacted by a lack of demand. Then came a series of choreographed announcements on fundraises by its digital and retail businesses, and long-pending asset monetisation plans of its fibre and pipeline assets. The company also undertook a Rs 50,000+ crore rights issue and hived off its fuel retail division to its joint venture with BP.

By the end of these highly publicized moves, Reliance Industries and its subsidiaries had managed to raise over Rs 2,20,000 crore in 2020, including in subsidiary Jio Platforms and Reliance Retail Ventures. Most of these funds were used to retire debt and repay other liabilities which were housed in various subsidiaries and at the mothership Reliance Industries. The company will receive around Rs 40,000 crore from investors holding its partly paid shares, who had subscribed to its rights issue last year.

The slew of announcements took investors by surprise and RIL’s stock rebounded from the low of Rs 884 on March 23, 2020, when India’s national lockdown was imminent, to over Rs 2,300 in September 2020.

In the recently concluded March 2021 quarter, Reliance Industries’ consolidated net profits rose by 129.1% YoY to nearly Rs 15,000 crore. Revenues were up 13.6% to Rs 1,72,05 crore, thanks to a rise in Oil to Chemicals (O2C) business’ revenues in Q4 by 4.5% YoY and a 20.5% rise in retail business’ revenues. In QoQ terms, net profit was flat while revenues were up nearly 25%.

We look at how the last year panned out for Reliance Industries and its various businesses, and what investors should expect in the coming quarters.

Transforming Reliance into a consumer business

Since its inception, Reliance Industries has mainly been a business-to-business company. It has made various forays into retail, telecom and electricity distribution (now housed in Reliance Infrastructure and Reliance Power after the group was bifurcated between the two brothers), among others. But the primacy of the petrochemicals and refining business meant they contributed highest to its revenues, followed by digital services.

The diversification into consumer facing businesses has meant that the company’s consolidated financial performance doesn’t get too impacted due to a fall in performance of any one business.

This can be seen in the growth in Q2 revenues despite a muted performance of the oil-to-chemicals business. Reliance Industries carved out its refining and petrochemicals business into a separate O2C subsidiary in February 2021. This is in preparation of a possible deal with Saudi Aramco for a 20% stake sale, for which the company had signed a non-binding agreement in 2019 valuing the O2C business at $75 billion. The negotiations on this are ongoing.

The point of worry is that despite Reliance Retail and Jio Platforms’ good performance, the consolidated operating cash flows at Reliance Industries for FY21 was just Rs 26,185 crore, compared to Rs 94,877 crore in FY20. Of course, the first two quarters saw a huge hit to revenues due to lockdowns and fall in aviation traffic leading lower fuel aviation fuel consumption, but the fact remains that the refining and petrochemicals business, (now christened oil-to-chemicals or O2C) is still the bulwark of the consolidated entity. Nearly 44% of consolidated revenues came from O2C, and around 35% from Jio Platforms (digital services) in Q4FY21.

This fact is visible from the contribution to consolidated earnings before interest, tax, depreciation and amortization (EBITDA) from O2C continues to remain high. For the past two quarters (Q3FY21 and Q4FY21), O2C and digital services (i.e., Jio Platforms, including Reliance Jio’s telecom business) contributed 79% Reliance Industries’ consolidated EBITDA. This is because retailing and e-commerce are a low margin business. Also, the retail business EBITDA received a boost from investment income from the money raised by Reliance Retail ventures that has been parked in mutual funds. In Q4, this amount was Rs 534 crore.

The stake sales in the past year also means that the share of Reliance Industries in the earnings of Jio Platforms and Reliance Retail have fallen. This could have caused the consolidated operating cash flows to dip considerably in FY21.

Jio consolidates, retail adapts

Reliance Jio ended FY21 as the largest mobile telecom player in India with 426.2 million subscribers. Jio’s average revenue per user or ARPU fell to RS 138.2 in the March 2021 quarter compared to Rs 151.0 a quarter ago as the company moved to a non IUC regime (telecom operators used to pay other operators interconnect usage charges till December 31, 2020), which has shaved off some revenues, but also led to a dip in costs. This has improved margins.

The net additions of subscribers in Q4 were around 15 million. The rate of additions of new subscribers rose after the company launched a new bundled plan with its JioPhone for up to two years. These are low paying customers, and caused downward pressure on ARPUs. The company’s fibre internet rollout has also remained tepid despite the work from home environment leading to rise in preference for fast broadband connections.

The street is waiting for the announcement on the company’s new smartphone that it is developing with its partners and investor Google. It is still unclear whether this will be a plain Android smartphone, or whether there will be certain services that will be exclusive to users of the new smartphone, like a walled garden. The street expects that this move will lead to another surge in subscriber additions. The company says it is targeting the nearly 300 million 2G customers with its JioPhone product.

The JioPhone relaunch also led to a surge in sales for its retail business in Q4FY21. The company added 826 stores in Q4, taking its total store count to 12,711. Before the lockdowns were imposed at the end of March 2021 in some states, the footfalls had improved to 88% of pre-covid levels, and up to 95% of grocery stores were operational in Q4. In April 2021, the footfalls fell to 35-40% of pre-covid levels.

The retail business saw strong growth in consumer electronics due to higher device sales. Digital and new commerce now make up nearly 10% of total revenues of Reliance Retail. This is across its apparel, grocery, electronics, among other retail businesses.

The soft lockdowns across many states means that the retail business will take a hit in Q1FY22. The fact that there is no national lockdown augurs well as the O2C business revenues will continue flowing, but absence of a surge in aviation and motor fuel demand would crimp any growth in revenues.

All eyes will be on Reliance Industries annual general meeting later in the year. There can be possible announcements on the new smartphone version of the JioPhone. There could also be some update on the Saudi Aramco deal either before, or during the annual general meeting. For now, investors would be delighted that Reliance Industries fields in the Krishna Godavari basin started producing gas that is being sold. This augurs well for future profitability.