Making sense of RIL’s $100 billion FY22 revenues

Market


Reliance Industries Ltd’s (RIL) gross revenues for financial year 2022 (FY22) have surpassed the $100-billion landmark (at 7.9 trillion). These revenues include the goods and services tax (GST) and excise duty, which brings RIL’s net revenues for FY22 to below $100 billion (at nearly 7 trillion).

Segmental numbers show that a good proportion of RIL’s total gross revenues (including inter-segment transfers) came from the oil-to-chemicals (O2C) segment. O2C revenues rose by a stellar 56.5% year-on-year (YoY) helped by a favourable base as FY21 revenues had declined. This segment contributed nearly 57% of RIL’s revenues in FY22. It is worth noting here that the O2C segment’s revenue performance was also driven by price growth led by the rise in crude oil prices and higher price realization of downstream products. Additionally, volumes were 7.5% higher led mainly by transportation fuels. Revenues from RIL’s retail and telecom segments grew by nearly 27% and 11% YoY, respectively. Together, these segments accounted for 34% of revenues.

To be sure, the sharp improvement in revenues may not amount to much, as far as investor sentiment goes. To an extent, this is evident in the stock’s performance, which is down about 6% since the company announced its quarter and year ending March results last week. “It does not make sense to look at revenues for RIL. Higher oil prices play a big part in driving the company’s O2C revenues, although tracking margins is more relevant for this business,” said an analyst requesting anonymity.

Indeed, profitability is more critical. Here, RIL’s consolidated earnings before interest, tax, depreciation and amortization excluding other income (Ebitda) grew by 37% YoY to 110,460 crore in FY22, while it grew by 11% on a two-year CAGR (compound annual growth rate) basis. Segment earnings before interest and tax (Ebit) show the O2C business accounted for as much as 57% of the incremental YoY total segment Ebit of the company.

It should be noted that while the O2C business contributes more than half of RIL’s revenues, the consumer businesses (telecom and retail) command higher valuations than O2C in analysts’ projections. For instance, in Nomura’s sum-of-the-parts (SOTP) valuation for RIL, retail and Jio together account for 57% of the company’s estimated enterprise value. At the same time, O2C contributes 33% to Nomura’s estimated enterprise value. Retail and Jio together account for 68.6% of Kotak Institutional Equities’ SOTP enterprise value of RIL’s based on June 2024 estimates. The remaining 31.4% of EV is accounted by the entire energy business in Kotak’s estimates.

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