Reliance Industries Set For Longest Losing Streak In Over 13 Months After Q4

Shares of Reliance Industries Ltd. logged the longest losing streak in more than 13 months after its lower petchem margin and retail business in the fourth quarter disappointed analysts.

The Mukesh Ambani-led conglomerate’s consolidated profit fell 12% sequentially in the three months to March. Its oil-to-chemical unit’s operating income rose 5.3% over the preceding quarter but the segment margin narrowed.

Still, most analysts said the company’s growth prospects remain intact. A recovery in O2C segment, strong performance by Reliance Jio aided by tariff hike as well as a rise in ARPU, and a rebound in retail are key growth drivers.

RIL shares fell 3.91%, the worst in 10 weeks. The stock extended losses for the sixth straight session—the longest since March 2021. Over the past six sessions, the scrip has shed 10.7% compared to a 5.5% decline in the Nifty 50.

Of the 40 analysts tracking the company, 28 maintain a ‘buy’, eight suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The average of the 12-month target price compiled by Bloomberg implies a 11.8% upside.

Here’s what analysts have to say about Reliance Industries’ Q4 FY22 results.

Motilal Oswal

• Maintains ‘buy’, hikes target price from Rs 2,800 to Rs 2,935—an implied return of 12%.

• Strong Ebitda growth in Reliance Jio offset the slower-than-expected retail Ebitda growth.

• Tariff hikes and 11% ARPU rise taken in the last quarter has aided Jio’s revenue/Ebitda growth.

• Retail business grew at a moderate pace, partly hit by Omicron.

• Better refining margin, possible inventory gains offset weak petchem margins as O2C Ebidta rose 43% YoY, but missed estimate.

• Expects RIL to benefit from accelerated Ebitda growth in retail business, Jio’s steady revenue growth and better refining margin.

Prabhudas Lilladher

• Maintains ‘buy’, reduces target price to Rs 3,000 from Rs 3,045, an implied return of 14.48%.

• Cuts FY23/24E earnings by 9%/7% to factor in higher than expected FY2021-22 debt.

• Strong refining performance offset the weakness in downstream chemical margin due to input prices.

• Retail segment was improvement with 98% stores operational compared to 97% in Q3.

• Jio’s performance remains steady, aided by tariff hike and rise in ARPU.

• RIL is well-placed to incubate new business nd pursue inorganic opportunities as all round recovery in activity for all the business segments of the company.

ICICI Securities

• Maintains ‘add’, cuts target price from Rs 2,960 to Rs 2,865—still an implied upside of 9.32%.

• O2C segment continued the steady recovery, with strong refining metrics and high sales volumes aiding the firm amid a soft margin environment in petchem segment.

• Retail business was a disappoint, but overall earnings growth prospects remain strong.

• Remains skeptical of meaning expansion in return ratios and/or any major moves to return cash to shareholders in view of ‘new energy’ investment plans.

Kotak Institutional Equities

• Maintains ‘buy’, raises target from Rs 2,925 to Rs 3,050, an implied upside of 20.15%.

• Results in-line with estimates, marked by strong operating performance across segments despite head winds.

• Rise in net debt, elevated capex and negative free cash flow were disappointing.

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

Emkay

• Retains ‘hold’ with ‘equal-weight’ stance, raises target price to Rs 2,850—an implied upside of 8.8%.

• Jio Ebitda exceeded estimates, while retail Ebitda fell due to Omicron impact.

• Rising distillate cracks in O2C offset weakness in petchem segment and high energy costs.

• Raises FY23E/FY24E EPS by 24%/15% building in higher GRMs and upgrade in retail and upstream business.

• Raises March 2023E target price by 4%.

• Higher feed costs dragged polymer-polyester deltas, while energy costs surged .

• Key risks: Adverse commodity/currency-B2C competition and new business risks