A weak first-quarter performance by Reliance Industries Ltd. has led to brokerages flagging downside risk to the company's earnings forecasts. The Mukesh Ambani-led company reported a sharp margin decline in its key oil-to-chemical business on a sequential basis, partially offset by slightly better petrochemical spreads and ethane cracker economics.
"The extent of the O2C decline and continued retail weakness was particularly disappointing," Citi said in a note. The brokerage has lowered RIL's fiscals 2025 and 2026 earnings-per-share forecast by 6% and 3%, respectively.
The telecom operations of the conglomerate will benefit from Jio's recent tariff hikes in the second quarter. The telco's revenue and operating profit were in line with street expectations, and since the average revenue per user was flat at Rs 182 for the fourth straight quarter, the tariff hikes will pull it up, Citi said.
The brokerage said the focus will now shift to RIL's annual general meeting next month, "with investors likely keen to hear updates on the listing of Jio and/or retail + timelines on new energy project commencements".
Segment revenue for the first quarter increased to Rs 1.57 lakh crore, primarily on account of higher product prices on the back of 9% increase in Brent crude oil prices, and higher volumes, supported by strong domestic demand, "Segment Ebitda dropped 22% sequentially as fuel cracks corrected sharply due to ramp-up of new refineries and subdued demand," Sanjay Roy, head of oil & gas vertical at RIL, said in a conference call.
Here's What Brokerages Say
Macquarie Research
Maintains a 'neutral' rating on the stock and a target price of Rs 2,750 apiece, implying a potential downside of 11% from the previous close.
Q1 was a material miss against consensus estimates.
Oil-to-chemicals segment was the key EBIT drag.
Retail saw lacklustre revenue growth with elevated store closure.
Continues to see downside to earnings per share.
Maintains relative preference for Bharti Airtel Ltd.
Lower FY25/26 earnings by 4%/1% post results.
Nomura
Nomura trimmed its Ebitda forecast for the current and the next fiscals by 3% and 2% respectively. It maintains a 'buy' call on RIL and the raised target price to Rs 3,600 apiece, implying a potential upside of 15.8% from the previous close.
The brokerage has an optimistic outlook on retail store additions, Jio’s tariff increase and O2C business benefiting from strong global oil demand growth, tight oil product markets and a likely recovery in petchem margins.
Q1 results in line with estimates; O2C delivered well in a challenging environment.
Net income of Rs 15,100 crore was 2% below brokerage estimates.
Consolidated net debt of moderated sequentially to Rs 1.12 lakh crore.
Capex rose to Rs 28,800 crore compared to Rs 23,200 crore in the previous quarter.
Trims fiscals 2025 and 2026 Ebitda estimates by 3% and 2% respectively.
Optimistic outlook on retail store additions, Jio's tariff increase, O2C benefiting from strong global oil-demand growth.
Nuvama
Target price hiked by 8% to Rs 3,786 with a 'buy’ rating.
Forensics imply healthy new energy business progress, pilots for solar and battery energy storage systems have started at Jamnagar and 5,000-acre complex to start 9.6 GW modules and related production this year.
RIL won PLIs of $0.7/kg, subsidising around 18% of the green hydrogen chain.
Recently granted 1,800 acres at Deen Dayal port for green hydrogen/ammonia production, 74,750 hectares earlier in Kutch for around 50GW renewable energy.
Systematix
Maintains 'hold' with an unchanged target price of Rs 3,050.
Tariff hike will start yielding benefits from the second quarter.
Sooner or later, Jio will start monetising 5G complementary services.
Estimates ARPU to jump 13.3%/6.1% YoY to Rs 205/Rs218 from current Rs 181 in FY25E/FY26.
Reliance Retail opened 331 new stores, but net addition remained lower at 82 during the quarter.
Higher footfall didn’t result in improvement in revenue, which instead saw a 2% drop.
On O2C, GRM has seen some improvement in the recent months.
The brokerage maintains bullish view on refining margin on account of lack of new refining capacity additions amid higher demand.
Forecast weak petrochemical margins to continue, while gross refining margin is expected to see some improvement.
Tariff hike is expected to result in higher ARPU from the coming quarter.
Estimates unchanged and continues to forecast Ebitda/PAT CAGR of 10.2%/12.2% in FY24–26E.
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