Reliance Industries (RIL) witnessed 15% YoY decline in Profit After Tax (PAT) (one-off gains YoY), while grew 16% sequentially. The 19% YoY EBITDA growth was led by B2C businesses, while (O2C + E&P) accounted for 78% of QoQ growth. RIL’s net debt has increased 18% QoQ to Rs1.10 trillion, on the back of Rs1 trillion YTD capex and will weigh high on the stock price, regardless of comfortable balance sheet.
Strength in middle distillates 53%+ fall in SAED (windfall tax), more than offset weakness in Petrochem; while 22% QoQ growth in E&P EBITDA was on account of 14% higher realization for KG basin gas. In Q3, B2C businesses accounted for 48% share in EBITDA versus 50% QoQ and 45% YoY.
During the analyst call, RIL shared improving outlook on each of the business segments; the O2C business should gain from strong GRMs + rising petrochem spreads (China opening up), whereas scale-up in gas production to ~30mmscmd (58% increase) in H2FY24, at a time when pricing outlook remains firm. In Telecom, focus is to fast-track 5G rollout and market share gains, while no specific timeline for tariff hike was discussed. Retail should sustain ramp-up in store additions (19m sq. ft area added YTD, 2029 new stores with focus on grocery – which has led to 65% YoY revenue growth in the segment).
RIL has spent Rs1 trillion capex YTD, majority of which is on Jio followed by Retail and E&P — as a result of which — the reported net debt is Rs1.1 trillion as of Q3, up 18% QoQ. The capex on 5G rollout, Retail and E&P should remain firm in FY24.
Analysts at IIFL Securities have cut their FY23/24 consolidated EPS estimates by 3-4% to reflect 3-8% EBITDA cut in Jio (deferment in tariff hike), higher depreciation, etc. The 15% p.a. PAT growth builds in back-ended ramp-up in E&P volumes and gradual pickup in revenue/sq. ft in Retail with unchanged margins. SoTP works out at Rs2,861/share; the stock will react positively to news flow on tariff hikes in Telecom, demerger of Jio Financial Services, and Green Energy business.
The US Federal committee's meeting will conclude on March 16, 2022.
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