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All eyes will be watching the quarterly performance of the most valued company on stock exchanges, Reliance Industries (RIL) on Friday. Ahead of the earnings, RIL shares witnessed a bearish tone tracking a broader selloff in markets. RIL's operating profit is expected to be driven by O2C and digital service segments for the quarter ending March 31, 2022 (Q4FY22).

Refining margin is seen to lead the growth in O2C business for RIL during Q4FY22, while retail business will continue to perform with healthy growth. Jio's monthly ARPU may rise aided by the tariff hike.

On BSE, RIL shares closed at 2621.15 apiece down by 19.60 or 0.74%. The shares touched an intraday high and low of 2659.55 apiece and 2594.60 apiece respectively. At the closing price, the company's market cap stood over 17.73 lakh crore.

During December 2021 (Q3FY22) quarter, RIL's consolidated profit rose by 37.9% yoy to 20,539 crore, while revenue skyrocketed by 52.2% yoy to 209,823 crore. RIL's digital services business climbed by 6.4% yoy in revenue terms to 25,200 crore, while EBITDA crossed 10,000 crore mark for the first time. Also, Reliance Retail delivered a landmark with all high revenue and EBITDA - increasing by 52.5% yoy and 23.8% yoy. Jio's ARPU during the quarter stood at 151.6 per subscriber per month.

What to expect in Q4FY22?

Harshal Mehta and Amogh Deshpande, Research Analysts at ICICI Direct in their Q4FY22 preview said, "RIL's consolidated EBITDA is estimated to grow 66.3% YoY to 38824.5 crore, mainly led by O2C and digital service segments. On a QoQ basis, it is expected to grow 30.7% led by O2C segment."

"Growth in refining margins (partially offset by weaker petchem profitability) is expected to lead to growth of 64% QoQ (and 94.5% YoY) in O2C EBITDA to 22,187.8 crore. E&P EBITDA is expected to improve 199.3% YoY to 1,436.7 crore on account of growth in realisation as well as output," the duo said.

Further, the duo said, "Jio, with lowest percentage of VLR (active subscriber) on network, is likely to see major impact of SIM consolidation with ~5 mn net loss during Q4. The monthly ARPU is expected to witness growth, driven by tariff hike, at ~8% QoQ at 164. Overall Jio standalone revenues are expected at 20,581 crore, up 6.4% QoQ. EBITDA at 10,288 crore, is likely to grow 8.1% QoQ. Overall EBITDA margins are expected at 50%, up 80 bps QoQ."

For Reliance Retail, the analysts in their note said, "we believe robust store addition trajectory (~837 stores in Q3FY22) and latest acquisitions to continue to fuel revenue growth. While January was hit due to Omicron, February and March witnessed a strong surge in demand. Overall retail revenues are expected to increase 20% YoY to 56,127 crore. Expect retail EBITDA margins to remain flattish YoY at 6.5% (excluding other income on investments)."

Road Ahead!

Probal Sen and Sanjesh Jain, Research Analysts at ICICI Direct in their research note today said, "Reliance Industries (RIL) is set to report strong CAGR in earnings (29%) over FY22-24E led by robust OTC (oil to chemicals) margin environment, steady growth in digital services and strong momentum in its retail segment. Add the meaningful strides being made in green energy related Giga factories and the reinvigorated upstream segment after a tepid 4-5 years and there is a recipe for strong growth over the next 24-36 months. Having said that, the stock has been a standout performer over the last 12 months; valuations of 18x FY24E PER/ 10.5x EV/EBITDA and 1.8x P/BV factor in the upsides, with near-term stress on return ratios owing to stronger-than-estimated capital allocations/challenges inherent in scaling up of new energy plans, making us cautious on material upsides hereon. Re-initiate coverage on the stock with an ADD rating and a target price of Rs2,960 per share, 12% upside from CMP."

On OTC segment, the duo's note said, "the Russian-Ukraine conflict has accelerated an already tight demand-supply situation for crude/products, particularly in key European markets, supporting assumptions of a bullish environment for OTC margins over the next 12-18 months."

"Multiple bolt-on acquisitions, continued investment in building complementary offline-to-online infra, recovery in momentum post covid and peer leading cost structure remain key drivers of strength for RIL. We expect segment EBITDA to grow at a CAGR of 30% over FY22-24E," they added.

Also, RIL's plan to invest >Rs700bn in 4 giga factories for solar/hydrogen/fuel cells and battery storage solutions are significant, as per ICICI Direct. They added assuming a pre-tax ROCE of 14-15%, EBITDA from this segment alone can touch Rs200-210bn at full commissioning (~12% of FY24E consolidated EBITDA).

On Jio business, the analysts said, "Despite a reduction in subscriber base over Q2-Q3FY22 due to culling of inactive subs/sim consolidation, I-Sec Telecom team believes that with better flow through of ARPU increase and the refinancing of debt, EBITDA and PAT will likely show strong numbers (RJio’s EBITDA/PBT estimated to grow at a CAGR of 22/10% over FY22-24E)."

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