Reliance Industries Q3 Review: Outlook Positive Despite Stress In O2C Segment
The earnings outlook for Reliance Industries Ltd remains positive with strong growth momentum seen in the telecom, retail and the oil and gas businesses.
Analysts have maintained their earnings estimates for FY24-26 despite hit on RIL's Ebitda in the third quarter on account of weak oil-to-chemicals segment performance.
Net profit for the Mukesh Ambani-led conglomerate fell 0.74% sequentially to Rs 17,265 crore for the October-December period, as against a Bloomberg estimate of Rs 18,080 crore.
RIL Q3 FY24 Highlights (QoQ):
Revenue from operations fell 2.98% to Rs 2.28 lakh crore (Bloomberg estimate: Rs 2.54 lakh crore).
Operating profit was down 0.77% to Rs 40,656 crore (Bloomberg estimate: Rs 40,413 crore).
Operating margin was up 40 basis points to 18.06% vs 17.66% sequentially (Bloomberg estimate: 17.3%)
Here's what brokerages made of RIL's Q3 performance:
Emkay
RIL reported largely in-line earnings in Q3FY24 with consolidated EBITDA at Rs 40,700 crore; PAT at Rs 17,300 crore.
O2C and Jio Ebitda, both saw a slight miss on estimates, albeit offset by better upstream business due to lower operating expenses and in-line performance from retail business.
Capex run-rate reduced to Rs 30,100 crore in Q3 versus around Rs 39,000 crore each in Q1 and Q2FY24.
Net debt was up 1% QoQ to Rs 1.19 lakh crore, due to pay-down of creditors for capex.
The company stated that its new energy giga complex would be commissioned in phases, starting H2CY24.
Broadly maintain the FY24-26 earnings estimates, but raise the SOTP-based target price by 8% to Rs 2,950 per share.
Target price was raised on the back of higher new energy business value (1.5x EV/IC) as development progressed on giga factory commissioning, green Hydrogen PLI win for 90ktpa etc., higher Jio EV/EBITDA target (11x vs 10.5x earlier on strong subs growth, peer rerating).
Citi Research
Q3 performance was overall in-line, with stronger oil & gas led by production growth and normalised operating expenditure offsetting weaker O2C.
RJio and Retail both expectedly reported softer QoQ growth.
Consolidated EBITDA/net income at Rs 40,700 crore and Rs 17,300 crore (-1% QoQ) were overall in-line.
The brokerage raised its FY24-26 EBITDA estimates by 2-5% led by higher tariff hikes in Jio, retail (recent robust performance), and O2C (Q3 beat).
Whilst the fundamental drivers remain intact, the stock’s recent outperformance makes risk/reward more balanced. It prompted the brokerage to downgrade RIL to ‘neutral’ with a target price of Rs 2,910.
Key triggers for the stock would be -- a surprise in magnitude of tariff hikes in Jio, monetisation updates on RJio and Reliance Retail, and the company deleveraging ahead of estimates.
Jefferies
Sharp decline in capex indicates “peak capex is behind” and free cash flow is improving
Expect retail capex to decline about 150b rupees y/y in FY24, and fall further in FY25
Jio’s headline capex should fall about 300b rupees in FY25 helping improve cash flow abating concerns on rise in net debt
“RIL trades cheap relative to Nifty,” forecast 12% growth in Ebidta in FY25 with Jio contributing lion’s share
Retain buy rating but raise price target to Rs 3,140 from Rs 3,125
Dolat Capital Market
Expect capex to decline in Jio and Retail in FY25 and FY26, helping improve cash flow and ease concerns on rise in net debt
Expect Reliance’s Ebidta to grow 12% annually through FY26
“We have increased the earnings of FY25/FY26 but we maintain accumulate” rating
Raise price target to Rs 3,010 from Rs 2,730
