Reliance Industries Q2 Results Review - Standalone Gains; Consumer On A Steady Path: Motilal Oswal

Motilal Oswal Report

Reliance Industries Ltd.’s Q2 FY24 consolidated revenue grew 1% YoY/12% QoQ to Rs 2,319 billion (inline). Ebitda reported a strong 31% YoY growth to Rs 410 billion (8% beat), aided by sustained performance in the oil-to-chemical segment, better gas price realisation, and steady Ebitda growth of 13%/32% YoY in Reliance Jio/retail during the quarter. Consequently, profit after tax grew 27% YoY to Rs 174 billion (5% beat).

RJio’s revenue/Ebitda grew 3% QoQ each (inline), fueled by 2.5% subscriber additions and marginal increase in average revenue per user. This flowed into the PAT, which rose 4% QoQ to Rs 51 billion (in-line). However, free cash flow (post-interest) turned negative to -Rs 19 billion, due to the continued high capex (Rs 190 billion in H1 FY24) and interest costs (Rs 76 billion) in Q2 FY24.

Reliance Retail posted a healthy revenue/Ebitda growth of ~19%/32% YoY (in line) buoyed by 41% YoY footfall growth and 31% YoY footprint additions. Higher depreciation and finance cost led to PAT growth of 21% YoY to Rs 27.9 billion.

Standalone Q2 FY24 Ebitda at Rs 192 billion (+14% versus our estimate) was fueled by strong refining/PVC cracks and a rise in gas volumes. O2C’s earnings in Q3 FY24 may be tempered by plant shutdowns and weak gasoline margin. Over the next 1.5 years, we are building in healthy O2C profitability amid:

1. refining net capacity additions in CY24 (0.6 million barrels of oil per day) are trailing oil demand growth of 0.9 mnbopd (International Energy Agency),

2. CY23 is the last year of substantial supply growth (~5%; CY20-24) for olefins, and

3. low inventories for oil products and polypropylene/polyethylene globally.

Consequently, we believe re-stocking can lead to a sharp uptick in margins.

Net debt improved sequentially to Rs 1,177.3 billion in Q2 versus Rs 1,266.2 billion in Q1. The cash and cash equivalents included Rs 103.5 billion towards capital raise in Reliance Retail. Capex for the quarter narrowed a bit sequentially to Rs 388.2 billion versus Rs 396.5 billion in Q1 FY24 (Rs 444.1 billion in Q4 FY23).

Using SOTP, we the refining and petrochemical segments at 7.5 times enterprise /Ebitda, arriving at a valuation of Rs 878/share for the standalone business. We ascribe an equity valuation of Rs 760/share to RJio and Rs 1,353/share to Reliance Retail, factoring in the recent stake sale.

Our target price is adjusted for Jio Financial Services Ltd. valuation. We reiterate our 'Buy' rating with a target price of Rs 2,760.

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