RIL reported an operating profit of Rs 23,368 crore, roughly equal to that in the immediately preceding quarter ended March, despite retailing revenue falling 18% sequentially. Operating profit has exceeded Bloomberg consensus estimates in nine out of ten previous quarters, potentially helping RIL achieve its earnings growth projections for FY22. Consensus estimates suggest RIL’s FY22 consolidated EPS would be Rs 86, translating into an increase of 36% on-year. RIL needs to deliver a cumulative EPS of Rs 67 in the remaining three quarters, which would not be a tall ask given the June-quarter run-rate.
As the curbs are lifted further and footfalls increase at retail outlets, RIL should garner robust contributions from retail and telecom, which account for 45% of the operating profit and two-thirds of its fair value.
Earnings growth in the oil-to-chemical (O2C) segment has improved with a higher realisation on retail fuel globally. Cracks on transportation fuel reached a high of 4-6 quarters, supporting the refining business. In addition, better spreads on polyester and polymers aided the financial performance of the petrochemical segment. Operating profit of the O2C segment rose 7.2% QoQ to Rs 12,231 crore, against Street expectations of 4.5% growth.
The digital business added 14.4 million net subscribers in the June quarter, taking the total tally to 440 million, making RIL the world’s second-largest company by subscriber base. The average revenue per user (ARPU) remained unchanged at Rs 138.4 on concessional tariffs during the second wave.
The Street is factoring in 470 million and 500 million subscribers, respectively, in FY22 and FY23. RIL plans to launch in September an affordable smartphone, developed jointly with Google. This would help reach out to 300 million 2G users.
The retail business had to negotiate curbs on mobility and operations, with several outlets seeing fewer operating hours due to the sporadic lockdowns. Revenue of the retail business fell 18% QoQ to Rs 38,547 crore while operating profit shrank 46%. Despite the lockdowns, the company continues to expand its retail footprint, adding 123 outlets in the June quarter and it has a total retail space of 34.5 million sq ft in India. With the acquisition of Just Dial, RIL could accelerate its merchant base, harnessing the latter’s 30-million-plus listings.
RIL has trailed the Nifty in 2021, but the level of underperformance will narrow as the visible revival in economic activity boosts its full-year earnings prospects.
