Q3FY23 Review: Reliance Industries: B2B drives QoQ growth; firm outlook

  • 23 Jan, 2023 |
  • 12:01 PM
  • Recommendation: Buy; Target price: Rs2,861

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.


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