Reliance Q3 – Digital shift is clear in the RIL story and holds big lessons

%name Reliance Q3   Digital shift is clear in the RIL story and holds big lessons

Once upon a time the announcement of quarterly results by Infosys used to be a big event in the markets. With IT having stabilized in the last few years, that is no longer the case. Now, it is Reliance quarterly results that is the event once every 3 months. An event it was!

Profits grow at 25%, wow!

It is tough for the profits of a company of the size and spread of Reliance to grow at 25%. For the Dec-20 quarter, Reliance announced a dip in sales due to lower crude oil prices but the net profit was still higher by 25% on a yoy basis. One can argue that this can attributed to an Rs.3,000 crore saving in taxes but that is only part of the story. The real story is that even as the oil sector continued to remain pressured, it was more than made up by a profit boost from the digital business.

Q3 was all about Jio Platforms

In a quarter when crude was down and retail struggled amidst the lockdown, it was the story of digital all the way. The ARPUs of the telecom business stand at an impressive Rs.151 per user. Jio was already the largest telecom service provider and in the Dec-20 quarter it managed to cross 41 crore subscribers. But the biggest story is the contribution of digital to EBITDA. For Q3, EBITDA of digital business stood at Rs.8,942 crore, or over 30% of the total EBITDA of RIL. That is a huge shift in favour of digital.

Market value composition

Two years back, the management of RIL had mentioned in its AGM that digital and retail would play a much bigger role in its market valuation in the future. That is already visible. If you consider the stakes placed by RIL with PE funds last year, it pegs the valuation of the retail and the digital business at around $130 billion. The balance $70 billion is for the oil refining, extraction, marketing and other businesses including petchem vertical. In reality digital is likely to play a bigger role in valuation as the retail franchise will also be largely a part of the overall digital ecosystem. RIL has already clarified in its last AGM that the focus of the O2C business will also shift largely in favour of green fuels.

Lessons for India Inc In the Reliance shift, there is a lesson for India Inc. Most companies struggle to make a shift, especially when it has to do with their core DNA. Here is an RIL that spent 50 years dreaming of just being the largest refinery and in less than five years shifts to become a predominantly digital company. RIL not only changed but also changed for the better; and valuations are a testimony. The lesson for India Inc is that even large companies can change provided the change is well thought through, well executed, well followed-up and well explained to all the stake holders. That is what RIL managed to perfection!

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