The excitement surrounding RIL stock has a lot to do with consumer spending, namely telecommunications and retail.
To say that the expectations of Reliance Industries Ltd (RIL) are high is an understatement The company's shares are among the best performers on the street, and even after the recent correction ̵
In this environment, investors may be disappointed that RIL made profits in the September quarter. Data collected by analysts at Bloomberg had provided for a 4% sequential increase in profit before tax, while RIL reported a 4% decline in pre-tax profit  The mismatch is primarily due to a better-than-expected increase in net interest costs of 25%. Given the sharp devaluation of the rupee, a higher interest burden on the company's foreign loans is not surprising; although analysts seem to have been somewhat surprised.
As far as business operations are concerned, things are more or less based on the script. The refining business reported earnings before interest and taxes (EBIT) of $ 5.322 billion, nearly the same as in the June quarter. While refining margins, at $ 9.5 / barrel, were lower than analysts' estimates, the RIL's weaker rupee helped to make a profit.
Petchem margins were also weak for a number of products, with the exception of paraxylene, where spreads rose sharply in the last quarter. Taken together, this led to a 3% increase in EBIT in the Petchem area to € 8.120 billion. The fact that profits fell off the very high base of the June quarter will be encouraging to investors.
Of course, much of the fuss over RIL shares has to do with their consumer goods, namely telecommunications and retail. None of them disappointed, at least not on earnings growth. Reliance Jio Infocomm Ltd recorded a sequential increase in EBIT of 19% to $ 2.042 billion, while the retail business saw an increase in EBIT of 16% to $ 1,244 million. Reliance Retail Ltd's earnings growth reflects a rapid expansion in the number of stores and the associated benefits of leverage.
Together, the two companies now account for nearly 20% of the company's total profit just 5% a year ago. Jios subscriber growth and average revenue per user were both ahead of analyst estimates.
Of course, there is still a long way to go. RIL said in its annual report for FY 18 that its goal is for consumer companies to contribute just as much to the energy and materials business over the next decade. And so the company sees no stone unturned.
Investment in the telecommunications business remained exceptionally high in the second quarter at 16,000 crore. In the first six months of the year, Reliance Jio invested around 44,000 kroner in capital and operating expenses (excluding interest and depreciation). In the same period it generated a turnover of 17.30 billion crowns. In other words, cash burn has remained at a high level. The investment phase is expected to continue as the company still lags far behind its final targets.
This is undoubtedly bad news for Reliance Jio's competitors, but it's not reassuring for its own investors either. With rising debt and interest costs, the value for equity owners could be lower than what investors had hoped for.