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MOSL: ANNUAL REPORT THREADBARE (ART) | RELIANCE INDUSTRIES FY18: Jio turns profitable on ‘liberal’ expense recognition

ANNUAL REPORT THREADBARE (ART) | RELIANCE INDUSTRIES FY18: Jio turns profitable on ‘liberal’ expense recognition

 

Reliance Industries’ (RIL) FY18 annual report highlights a healthy improvement in earnings, with PAT up 21% YoY to INR361b, mainly driven by the petrochemicals business. Reliance Jio reported PAT of INR7b in its maiden year of operation. Jio incurred lower expenses than our estimate, as only 45% of CWIP was capitalized and depreciation/amortization was done on the basis of expected pattern of consumption of the expected future economic benefits. OCF post interest improved to INR538b (FY17: INR365b), largely due to increased payables of INR510b, of which 44% were non-trade. FCF post interest remained negative at INR192b due to high capex of INR730b. With INR1.8t of assets under development (CWIP+ITUD), RoCE was subdued at 8.4%. Adjusted debt rose to INR2.9t (FY17: INR2.6t). Related party transactions stood at INR92b (18% of op and admin expenses). Net unhedged forex exposure stood at INR1,075b (36% of NW); however, RIL’s hydrocarbons business partially provides a natural hedge.

 Standalone business drives performance: Petrochemicals business reported 63% EBIT growth, with the margin expanding 400bp. Standalone PAT, thus, increased 7% to INR336b.However, subsidiaries’ performance remained muted. Jio’s PAT stood at INR7b, with the margin at 3.6% and RoCE at 1%. Reliance Retail’s revenue doubled to INR515b, majorly led by intercompany purchase from Jio (which, however, will get eliminated on consolidation). Its PAT grew 3x to INR12b.