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SHOW ME THE MONEY

What’s helping India’s richest man get richer?

By Manu Balachandran

India’s richest man, and the country’s most valuable company, just can’t stop making money.

On July 20, Mukesh Ambani’s Reliance Industries (RIL) announced a 28% jump in its net profit for the first quarter of the 2018 financial year. Profits swelled to Rs9,079 crore between April and June, up from Rs7,764 crore in the corresponding period last year. Quarterly revenues rose 25.5% to Rs92,661 crore.

The jump in profits was mostly because RIL managed to improve its gross refining margin (GRM), the difference between the price of crude oil per barrel and the price of the finished products, to about $11.9 a barrel. This was the highest GRM in nine years, and at least $5 more than the global GRM benchmark of $6.5. In the run up to the results, analysts had expected RIL’s refining margins and profits to fall. More than two-thirds of RIL’s revenue and operating profit comes from its refining business.

RIL also managed to rake in Rs1,087 crore from the sale of the firm’s 76% stake in Gulf Africa Petroleum Corp, a South African subsidiary.

Crude oil prices have dramatically dropped since 2014, but recovered marginally to about $50 earlier this month. The cost of crude has remained below $50 through the last two years and even touched a low of $27 in January last year due to a glut in the market. But that hasn’t stopped RIL from making big bucks.

The strong financial performance helped RIL hit a nine-year high of Rs1,578 on the bourses on Friday (July 21), a day after it announced the results. Alongside, the group’s telecommunication arm, Reliance Jio, announced the launch of a 4G-enabled feature phone in another attempt to disrupt the $50 billion Indian telecom industry.

Launched last September, Jio already has over 125 million users, making it the world’s fastest-growing telecom firm, Ambani said, adding customers quicker than Facebook and WhatsApp. ”My sense is that they are looking at between 150 million and 200 million subscribers within the next 12 months,” Nitin Soni, a director at Fitch Ratings, told Reuters.

RIL was established by Ambani’s father Dhirubhai in 1966 to manufacture textile products. It has since diversified into petroleum, retail, and even media. Ambani and his family continue to hold an over 40% stake in RIL. Between November 2016 and July this year, the 60-year-old billionaire added over $13 billion to his kitty, according to the Bloomberg Billionaire index. Just this month, Ambani’s personal fortune grew by another $3 billion, standing at a total of $33 billion as of July 21.

With Jio expected to generate revenues of Rs21,300 crore in the fiscal ending March 2018, RIL could see revenues and, in turn, profitability rise. ”With mega core projects commissioning shortly, we expect RIL’s free cash flow to turnaround, return on equity to rise and profits to double in five years,” brokerage firm Edelweiss said last month. 

India’s richest man is going to get even richer.