Reliance Industries Ltd‘s June quarter performance that was in line with expectations was supported by digital services and oil to chemical (O2C) business even as retail business was impacted by lockdowns.
The stock rose up to 1.5% in early trade on Monday, but gave up most of the gains as the day progressed.
O2C business reported resilient performance, with Ebitda growing 7% sequentially despite the covid impact. Notably, this was the fourth sequential quarter of growth after the first wave.
Although domestic demand for fuels and downstream chemicals saw some impact of lockdowns, the operating performance benefitted by firm petrochemical margins and improving refining margins. The company said that the O2C chain benefited from favourable margins, feedstock and energy cost optimisation.
“Oil to chemicals segment was relatively resilient and segment Ebitda further increased. Apart from higher volumes (throughput +up 2 % sequentially), we estimate that refining margins would also be marginally better,” said analysts at Nomura Global Equity Research.
The strong and better-than-expected digital services business performance was impressive. The total customer base of 440.6 million as of June 2021 meant that there was a net addition of 14.3 million customers in 1Q FY22. The company also managed to maintain average revenue per user or ARPU. “ARPU of ₹138 with improving subscriber mix and better seasonality were offset by covid impact,” said the company.
“Despite the impact of the second wave, RJio held its ground after the push from the Jio Phone launch in 4QFY21,” said analysts at Motilal Oswal Financial Services Ltd (MOFSL).
Analysts remain positive on forward prospects for digital services business too. “With continued market share gains, Fiber- To-The Home /enterprise ramp-up, strategic tie-ups, in-house 5G capabilities, increased spectrum footprint and digital ecosystem rollout, the outlook remains strong,” said analysts at Nomura.
The retail business, however, felt the heat of the pandemic that reduced footfall, thereby impacting revenues at Reliance stores. Footfall at its stores was at 46% of pre-covid levels, said the company.
Although grocery sales remained resilient, it could not prevent a 46.1% sequential decline in the segment’s Ebitda.
A recovery is expected in footfall, though with caution amid the fear of a third wave. Nevertheless, the rising e-commerce activities bode well. JioMart saw a 25% sequential increase in the number of orders with 75% repeat orders. It has expanded to 218 cities, suggest reports.
Kirana partnerships increased 33% sequentially. Apparel brand Ajio saw four times year-on-year increase in traffic, monthly activity users and number of orders. Ajio Luxe, its premium apparel brand, grew to 30% of luxury sales.
Reliance Digital (electronics) clocked its best-ever quarter and an increase in metrics, said analysts at JP Morgan Asia Pacific Equity Research in their report.
Most analysts remain positive about the company’s prospects moving forward. The catalysts, as per Credit Suisse, include the launch of a low-cost 4G smartphone in September 2021, which should help accelerate the growth of Jio’s subscriber base to more than 500 million (1Q FY22: 440.6 million). The closure of Future Retail deal and the finalisation of deal terms with Saudi Aramco for the O2C segments are the other triggers to be watched.
The stock remains in a downtrend since mid-July highs, having corrected more than 7%, whereas Nifty is only marginally down since then.