Diversified conglomerate Reliance Industries’ (RIL) earnings for the June quarter seem to have disappointed the street, as RIL’s share price fell over 2 percent in early deals on Monday (July 24).
Diversified conglomerate Reliance Industries’ (RIL) earnings for the June quarter seem to have disappointed the street, as RIL’s share price fell over 2 percent in early deals on Monday (July 24).
On Friday, RIL reported its Q1FY24 scorecard, which showed a decline in its consolidated revenue and profit for the quarter due to the weak performance of its O2C (oil-to-chemical) business.
On Friday, RIL reported its Q1FY24 scorecard, which showed a decline in its consolidated revenue and profit for the quarter due to the weak performance of its O2C (oil-to-chemical) business.
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Reliance Q1 Results
Reliance Industries posted a net profit ₹16,011 crore, down 10.8 percent ₹17,955 crore in the same period last year. Gross income from operations for the first quarter of the current financial year ₹231,132 crore, a decline of 4.6 percent ₹242,529 crore during the same period last year.
Its earnings before interest, tax, depreciation and amortization (EBITDA) for the June quarter ₹38,093 crore as compared to Rs ₹37,997 crore during the same period last year. Despite steady growth in the retail and telecom sectors, O2C performance offset the company’s overall growth.
Brokerages post Q1 results for RIL
Perspectives of domestic brokerages
Most brokerage firms maintained their previous views on the stock after RIL’s Q1FY24 results. However, there were some changes in EBITDA and earnings per share (EPS) estimates, but most brokerage firms remain positive on the stock.
Segment-wise, the brokerage firm pointed out that the consumer business is a mixed bag with retail seeing moderate growth, but the future is likely to witness gains from the group’s footprint.
Motilal expects growth in telecom to continue to soften, given the high base and low likelihood of tariff hikes in the near term, as well as intensifying 5G spending.
While upstream production is expected to pick up to 30 mmscmd in the coming months from 20.9 mmscmd in FY24, concerns over refining and petrochemicals margins remain, Motilal said.
Motilal values Reliance Retail’s core business at 40x EV/EBITDA in FY25E and 5x to reach Connectivity’s valuation. ₹1,668.
“Value comes in RIL shares of Reliance Retail ₹1,500 (for its 89 per cent stake). “Our premium valuation multiples capture the opportunity for rapid expansion of its retail business and aggressive expansion of digital platforms,” Motilal said.
For RJio, the brokerage firm said its FY24/FY25 estimate factoring in 11 percent revenue CAGR and 14% EBITDA CAGR has been broadly maintained over FY23-25.
“RJio is valued at an EV/EBITDA multiple of 12x on FY25E EBITDA. Potential tariff hikes, market share gains from VIL and opportunities in digital offer value for the option. ₹150, thus arriving at a valuation ₹750 (66 per cent of which is adjusted for equity),” said Motilal Oswal.
“With SOTP, we value the refining and petrochemical segment at 7.5 times FY25E EV/EBITDA. ₹904 for a standalone business.We provide an equity valuation ₹750 to RJio and ₹1,500 for Reliance Retail. The valuation of new energy has reached its BV (book value), which indicates a price ₹16. Our target price is adjusted for JFS valuation. We reiterate our Buy rating with target price ₹2,935,” said Motilal Oswal.
Nuama Wealth Management A buy call was maintained on the stock, but the target price was revised ₹3,088 onwards ₹3,205. Nuwama said RIL’s new energy will unleash the next phase of growth opportunity.
While most brokerage firms maintained their earlier views, Kotak Institutional Equities Target price downgraded the stock to an ‘Add’ from ‘Buy’ and ‘Reduce’ ₹2,700 onwards ₹2,800, discounting the recent rally in the stock and observing the absence of recent catalysts.
“After the JFS demerger, we now value RIL at a higher share count (6.765 billion shares including treasury shares) and as a result our ex-post fair value ₹2,800 would be 6 percent less (approx ₹170). We carry forward our valuation to June 2025E (from March 2025E) and now value R-Jio in DCF, implying March 2026 EV/EBITDA (8.5 times for ongoing business and optional value compared to 8 times EV/EBITDA). ₹570 billion for the duopoly). Our updated fair value ₹2,700. After the recent rally on the JFS demerger and lack of near-term catalysts, upside seems limited and we downgrade RIL to ‘Add’ from a ‘Buy’.
The brokerage firm lowered its FY24 and FY25 consolidated EBITDA by around one percent each.
“Our EBITDA for RIL’s other core segments is largely unchanged. Our FY2024-26E revenue is 1-2 per cent lower, while EPS is 7-8 per cent lower, as we now take fully diluted shares (including treasury shares),” said JFS after fair value calculations for EPS as well.
While Kotak revised its figures, it noted that the outlook for each of RIL’s core businesses remains positive.
“In refining, margins are volatile and down from recent highs, and the near-term outlook is relatively strong. With fuel fracking easing, earlier concerns about export taxes have eased. In chemicals, we see a gradual margin recovery as the downcycle continues. Reliance is relatively better.
Perspectives of Global Brokerages
Most global brokerage firms maintained their previous views on the stock after RIL’s June quarter earnings.
Global brokerage firm CNBC-TV18 reported Jefferies Maintained its Buy recommendation on RIL with target price ₹2,935, citing RIL’s EBITDA which came in line with estimates across all segments. However, retail growth disappointed while margins improved. Jefferies said the risk-reward balance is balanced after the recent rally.
City Reliance Industries also maintained a buy call with a target price on the stock ₹2,750, reported CNBC-TV18. Citi said Q1FY24 consolidated EBITDA was broadly in-line. “Key segments have a soft near-term outlook, which will prevent earnings upgrades,” CNBC-TV19 quoted Citi as saying about RIL.
JP Morgan The stock has an Overweight rating on the target price ₹3,040, reported CNBC-TV18. As reported by CNBC-TV18, JPMorgan believes the downgrade cycle is behind it. It raised FY24-25 EBITDA estimates by 1.5-4.1 percent, but the higher tax rate lowered earnings per share (EPS) estimates by 5.4-2.9 percent.
“Believe the stock will offer multiple potential catalysts over the next 18 months. The upcoming AGM is likely to provide more visibility,” JPMorgan said, according to CNBC-TV18.
On the other hand, MacquarieAccording to CNBC-TV18, an Outperform rating was maintained on Reliance at the target price. ₹2,100, the company reported a lower Q1 with lower margins a drag on cyclical O2C business; FY24-25 EPS estimate is below consensus of 14-18 per cent.
Shares of Reliance Industries fell nearly half a percent for the year, while the Sensex equity barometer rose 10 percent over the same period.
Reliance Industries, technically, is correcting from its highs since the demerger of the business, said Srikanth Chauhan, head of research (retail), Kotak Securities. It can fall ₹2,470 and ₹2,430 in the worst case scenario, when there is resistance ₹2,530 and ₹2,590″
Disclaimer: The above views and recommendations are those of individual analysts and broking companies and not of Mint. We advise investors to check with certified experts before making investment decisions.