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Is Reliance Guiding For A 10% Profit Growth In FY21?

Here’s what RIL’s rights issue plan reveals about its FY21 profit estimates.

Reliance Industries Chairman and Managing Director Mukesh Ambani is displayed on a screen as he speaks during the Vibrant Gujarat Global Summit in Gandhinagar, Gujarat. (Photographer: Dhiraj Singh/Bloomberg)
Reliance Industries Chairman and Managing Director Mukesh Ambani is displayed on a screen as he speaks during the Vibrant Gujarat Global Summit in Gandhinagar, Gujarat. (Photographer: Dhiraj Singh/Bloomberg)

Reliance Industries Ltd., having reported its biggest drop in net profit in nine years, expects its bottom line to grow 10 percent in the ongoing financial year through March 2021.

India’s biggest company by market value didn’t explicitly provide any guidance in its earnings statement. But it announced a fund-raise from existing shareholders. Hidden within those details is how the Mukesh Ambani-controlled oil-to-telecom conglomerate sees its profit pan out.

RIL announced India’s biggest rights issue to raise Rs 53,125 crore for paring debt and reducing interest costs. The company will issue new stock to existing shareholders at Rs 1,257 apiece, a discount of 14.3 percent to the April closing price.

The issue, it said in the statement, will be earnings per share accretive, increasing it by 1 percent in FY21. That will come on an expanded equity base after issuing fresh shares. According to BloombergQuint’s calculations, that suggests its consolidated net profit could be higher by a little over 10 percent this fiscal.

Besides lower finance costs, earnings growth will be aided by telecom business and other segments as its energy and retail categories are expected to suffer because of the restrictions to counter the new coronavirus pandemic.

Performance in the quarter ended March pointed to that. Earnings before interest and tax, or operating profit, of the refining and petrochemical segments declined 18 percent and 13 percent, sequentially, because of the fall in demand.

Retail EBIT also dropped 13.7 percent sequentially for the first time in four years as people are only buying essentials during the lockdown.

Only the telecom business reported a sequential growth in its operating profit, led by tariff hikes in December, subscriber addition and higher usage.

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