Boosted by a decline in raw material costs and big savings on tax expenses, Reliance Industries (RIL) reported a higher than expected net profit during the January-March 2023 quarter (Q4FY23) despite muted growth in revenues during the quarter.
The company reported its highest ever consolidated net profit of Rs 19,299 crore in the quarter, up 19.1 per cent year-on-year (YoY) from Rs 16,203 crore in the fourth quarter of FY22. Net profit was up 22.2 per cent sequentially from Rs 15,792 crore in Q3FY23. Analysts expected the company to report a consolidated net profit of Rs 17,850 crore.
Revenue at RIL rose 2.7 per cent YoY to Rs 2.13 trillion in the March quarter, while for the full year, it jumped 25.6 per cent to Rs 8.8 trillion. RIL’s raw material expenses were down 7.9 per cent y-o-y during the fourth quarter as against a 2.1 per cent YoY increase in its net sales.
The company attributed this to a decrease in revenue from the O2C (oil to chemicals) business on account of a sharp fall in crude oil prices and lower price realisations on downstream products such as transportation fuels and petrochemical products.
However, a decline in raw material prices boosted RIL’s operating margins, leading to strong double-digit growth in earnings before interest, depreciation, taxes and amortisation (Ebitda) during the quarter.
The company’s operating or Ebitda margin was up nearly 300 basis points y-o-y to 18.9 per cent of revenues in Q4FY2, the highest in the last five quarters. RIL’s bottom line got a booster from the decline in tax expenses.
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The company’s expenses on corporation tax, including deferred taxes, were down 36.5 per cent YoY to Rs 2,787 crore in Q4FY23 from Rs 4,390 crore in the corresponding quarter a year ago and Rs 5,266 crore in Q3FY23.
It was largely due to a sharp decline in deferred taxes, which fell to Rs 3,525 crore in Q4 from Rs 8,849 crore a year ago.
The company said earnings would have been even higher if not for a special additional excise duty (SAED) on the export of transportation fuels imposed in July last year.
The additional taxes hit RIL’s net profits by Rs 711 crore during the fourth quarter, according to the company.
However, on the downside, RIL gross interest expenses were up 63.6 per cent y-o-y to Rs 5,819 crore and they were equivalent to 14.1 per cent of the company’s operating profit in Q4FY23, the highest in the last eight quarters. For comparison, the ratio was 10.5 per cent a year ago and 13.5 per cent in Q3FY23. The company attributed this to higher interest rates and loan balances.
RIL’s gross debt was up 18.2 per cent y-o-y to Rs 3.15 trillion while its net debt was up 216.6 per cent y-o-y to Rs 1.1 trillion at the end of Q4FY23. However, net debt was largely unchanged on a quarterly basis.
RIL’s three key operating divisions -- O2C, retail (Reliance Retail) and telecom (Reliance Jio Platform) -- reported double-digit growth in operating and net profit during the quarter. This will be welcomed by the markets and shareholders. However, the deceleration in revenue growth and the steady rise in interest expenses remain a concern.