On 30 April, Reliance announced its Q4 results for the Mar-21 quarter. Even as the quarterly revenues scaled Rs.150,000 crore, net profits rose 108% on a YoY basis. But the story was in fine print.
Reliance – a sum of many parts
Back in 2016, when Mukesh Ambani announced the launch of Jio, he projected that data would be the new oil. The Q4 of FY21 has almost made it correct. Of course, oil-to-chemicals or the O2C business remains the biggest contributor to the top line revenues accounting for over 65% of the top line. But what is really of interest is the contribution to the EBITDA of Reliance Industries. Q4 of FY21 saw retail and digital verticals generating more EBITDA than good old refining and petrochemicals business.
Some of the numbers are interesting. In Q4, the O2C business generated EBITDA of Rs.11,407 crore on revenues of Rs.101,080 crore. That is an EBITDA margin of 11.3%. However, the retail business generated EBITDA of Rs.3,623 crore on revenues of Rs.46,099 crore giving an EBITDA margin of 7.86%. But the pick of the lot was digital, despite lower ARPUs. The digital business generated EBITDA of Rs.8,945 crore giving EBITDA margins of 39.53%. It is digital that is driving profit growth at RIL. In fact, the retail and digital businesses contribute more to company EBITDA than the O2C vertical. Clearly, as Mukesh Ambani said, data has become the new oil for RIL.
Drivers of Reliance’s growth
Two things emerge from the Reliance quarterly results. Firstly, the top line of Reliance is now increasingly being driven by the retail business. On a YoY basis, the revenues of the O2C business have only grown by 4.5%. During the same period, the revenues of the retail business have grown by 20.5% and the retail revenues are now nearly 50% of O2C revenues. Secondly, profits are being driven by digital. For example, the O2C EBITDA was down by -4.63% while the EBITDA of digital was up 31% YoY while the EBITDA of retail was up 41%. However, considering higher EBITDA margins of digital, that is clearly driving the profitable growth of Reliance.
Digital plus Retail ecosystem
Mukesh Ambani has been insisting that the real big story of Reliance would be when digital and retail converge to create an all-India ecosystem. One thing is clear that digital profits have now become largely immune to the level of the ARPUs. However, the challenge is to give the next big thrust to the digital business and provide a platform for retail to capture maximum wallet share. That is possible when the RIL ecosystem of the future is able to own the digital and retail customers from end-to-end or from farm-to-fork as we call it. One thing is apparent that RIL was right in diluting its bets on old oil. It is, after all, new oil that is driving the RIL story!