Reliance Industries Q2 Review: Growth Momentum To Continue In FY23, Say Analysts

Most analysts raised Reliance Industries Ltd.'s earnings estimates and target price after the second-quarter earnings, expecting the growth momentum to continue in FY23 on retail, upstream and oil-to-chemicals segments.

There are a few downside risks such as deterioration in refining margins, weakness in petrochemical margins, sharper rupee appreciation against the dollar, lower-than-expected tariff hikes in Reliance Jio Infocomm Ltd., and slowdown in Reliance Retail Ltd.'s growth, according to analysts.

RIL’s second-quarter profit fell on lower operating income and margins. The numbers were, however, better than what analysts expected.  

The Mukesh Ambani-led conglomerate’s consolidated profit declined 20.2% sequentially to Rs 15,512 crore in the quarter ended September, according to its exchange filing. That compares with the Rs 14,456.5-crore consensus estimate of analysts t tracked by Bloomberg. 

RIL Q2 FY23 Highlights (QoQ)  

• Revenue from operations rose 4% to Rs 2,32,863 crore, against the estimated Rs 2,25,825.5 crore. 

• Ebitda fell 17% to Rs 28,416 crore, compared with the Rs 30,335.5-crore forecast. 

• Operating margin stood at 12.4% versus 15.6% as of June.   

Here's what brokerages have to say about Reliance Industries' Q2 FY23 results:

Goldman Sachs

• The brokerage sees three main drivers for share price performance in FY23: earnings, digital launches and new energy.

• Expects earnings rebound on sustained refining margin recovery, tariff hikes, higher oil prices, and omni-channel led sustained growth in retail. 

• Full integration with WhatsApp and improving traction for JioPhone next and electronics launch on JioMart will help.   

• RIL’s new energy business roadmap, which the brokerage values at $30/48 billion, implies 12/18% of their base/bull sum-of-the-parts valuations. 

• Expects strong earnings growth of 39% CAGR over FY21E-23E, with the FY23 earnings 14% ahead of Bloomberg consensus. 

• Sees favorable risk reward, with updated bull/base/bear case implying +78%/+24%/-16% returns to the current price.

Morgan Stanley 

• RIL's around 5% earnings beat was driven by higher telecom ARPUs, higher upstream gas Ebitda and a significant pickup in retail margins.

• O2C Ebitda was slightly below, with higher energy costs. Telecom subscriber churn was a key negative.  

• The overall earnings upgrade story is firmly in play with net asset value being the next. 

• All businesses except chemicals showed a quality beat, it said. 

• Chemicals Ebitda was lower than its forecast due to a higher impact from gas costs and decline in polyester domestic demand.

CLSA 

• September quarter standalone Ebitda, EBIT & PAT were 3-6% ahead of estimates as a big upstream beat was partly offset by a slight miss in O2C.

• Higher retail profit drove a 6-7% consolidated Ebitda/EBIT beat, while PBT/PAT were 20-24% ahead aided by a big Rs 2,840 crore one-off gain on the sale of U.S. shale assets.

• A net decline of 85 lakh subscribers for Jio despite 3.5 crore gross additions along with a 2% miss in Jio’s PAT were negatives.

• The addition of 830-plus retail stores and extending the merchant-based JioMart offering to digital businesses keeps up the future promise of retail.

• Raised EPS estimate by 3-7%, and raised target from Rs 2,820 to Rs 2,850.

• Retained 'outperform' rating on its long-term promise growth as well as its 24% YoY net profit growth in FY23. 

Kotak Securities

• RIL’s Q2 results were ahead of estimates marked by a robust recovery in operating performance across segments except O2C.

• Elevated capex and reduction in Jio’s subscriber base were a tad disappointing yet again.

• Expects earnings trajectory to improve further over the next 12 months driven by strength in refining, further hike in telecom tariffs, and strong growth in retail business.

• Reduction in reported net debt was lower at Rs 20,100 crore compared to the cumulative cash inflows of Rs 56,600 crore from rights issue and cash profits.

• Rs 36,500 crore incurred in capex, recent acquisitions in new energy and retail segments, working capital and repayment of capex/other creditors during the quarter.

• Reiterate ‘buy’ rating on the stock, while revising sum-of-the-parts based fair value to Rs 2,925 from Rs 2,850 earlier on rolling forward to March 2024 estimates.

• Raised its FY23 EPS estimates by 3-6% and broadly retained the FY24E EPS while factoring stronger growth for retail business.