Q4FY23 Review: Reliance Industries: O2C-led earnings beat

24 Apr 2023 , 10:29 AM

Reliance Industries’ (RIL) Q4FY23 PAT grew 19% YoY ahead of forecasts, on strong O2C, which more than offset the weak Retail performance. Performance of Jio and E&P was in-line with expectations of IIFL Capital Services. In FY23, RIL generated an OCF of Rs1.15 trillion versus capex of Rs1.4 trillion, while the OCF/EBITDA conversion was 80%; net debt/EBITDA on reported/adjusted basis works to 0.8x/1.9x. 

RIL’s Q4FY23 PAT grew 19% YoY; Jio, E&P performed in-line, while miss in Retail was offset by beat in O2C and lower tax. B2C share in EBITDA was 45% versus 45% YoY and 48% QoQ. In FY23 massive scale-up in Retail business (58% YoY growth in area), may have led to investment in WC, for which the OCF/EBITDA conversion was 80% versus 100% YoY. Capex for FY23 was Rs1.4 trillion, which has been funded through mix of debt, IR and creditor for capex; gross/net debt stand at Rs3.15/1.1 trillion, up 18%/217% respectively YoY, but was flat QoQ.

RIL sees the O2C business to be choppy, given the volatility in Oil, products, pickup in China (H2), and new capacity adds (polymers, refineries, if not delayed). Positively, domestic consumption has shown strength, which places it favorably. E&P is set to grow non-APM gas production by ~60% to 30mmscmd in FY24. Retail business should continue to grow trading area, with a focus to improve asset turns.

Meanwhile, Jio is targeting to fast-track 5G rollout and pocket chunk of subscriber adds. RIL’s post earnings webinar was silent on the Green Energy segment and Jio Financial Services (JFS).

Analysts at IIFL Capital Services have cut their FY24/25 PAT estimates by 4-5% to reflect back-ended tariff hikes in Jio, rising interest costs etc.