Reliance Industries' Q3 Earnings To Be Driven By Three Verticals, Say Brokerages
Nomura and JPMorgan pick segments that will drive Reliance's third-quarter earnings.
A recovery in Reliance Industries Ltd.'s oil-to-chemicals segment, a strong uptick for upstream, and sustained growth across consumer-facing businesses will lead to Ebitda growth of 10% sequentially in the third quarter, Nomura said.
The consolidated Ebitda, according to the brokerage, will rise 10% sequentially to Rs 34,200 crore, while the standalone Ebitda may gain 14% from the previous quarter to Rs 13,600 crore.
Mukesh Ambani-owned oil-to-telecom conglomerate could see 12% higher O2C Ebitda aided by higher refining margins of $10/bbl. In addition, its upstream segment Ebitda in the third quarter may increase by 19%, supported by higher realisations.
The brokerage expects Reliance's digital unit Jio Platforms Ltd.'s Ebitda to rise 4% driven by end-of-period subscriber additions of 50 lakh and a "modest" increase in average revenue per user to Rs 179.
The brokerage expects Reliance's retail segment to post an Ebitda growth of 8% quarter-on-quarter to Rs 4,600 crore, underpinned by festive demand, store additions, and operating leverage.
The brokerage, in its investor note dated Jan. 16, maintained a 'Buy' rating on the stock with a target price of Rs 2,750 per share.
What Nomura Expects For Other OMCs
A significant easing of blended auto-fuel margins and refining margins sustaining at elevated levels makes way for oil marketing companies to "return to the black in Q3 FY23," the brokerage said.
The brokerage estimated normalised refining margins of $9.5 per barrel for Hindustan Petroleum Corp., $11 per barrel for Indian Oil Corp., and $12.4 per barrel for Bharat Petroleum Corp.
It expects Ebitda for HPCL at Rs 1,100 crore versus Rs 1,500 crore in Q2. While, for Bharat Petroleum, Nomura predicted Ebitda of Rs 2,600 crore, compared to Rs 4,200 crore in the previous quarter. Indian Oil Corp. could post an Ebitda of Rs 6,000 crore versus Rs 8,800 crore, according to the brokerage.
Separately, JP Morgan lowered its FY24 and FY25 Ebitda forecasts by 2.5% and 4.2%, respectively, while reducing the price target to Rs 3,015 from Rs 3,065.
Still, the brokerage expects O2C, exploration and production, as well as retail businesses, to continue driving Ebitda improvement. "We forecast 14% Ebitda CAGR for RIL (Reliance Industries) over FY22–25."
The brokerage kept an 'overweight' call on the stock, betting on a healthy earnings environment for the company aided by its O2C and exploration and production businesses, which are likely to benefit from China's reopening and higher volumes.
But, for the telecom segment, JP Morgan expects no tariff hike in fiscal 2024, thus justifying the rationale behind the Ebitda forecast downgrade. It said that no tariff hike in fiscal 2024 will lead to a 7% cut in the FY24 Ebitda estimate for Jio.
The brokerage pointed out that investors have refocused on Reliance’s capex and rising debt. "We expect overall spending levels to moderate as spectrum acquisition is behind us and large immediate spending in the New Energy business is unlikely."