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Home / Markets / Mark To Market /  A broad-based rebound likely for RIL this year

Reliance Industries Ltd (RIL) is expected to see consistent recovery in various businesses in 2022. Earnings prospects of its telecom business, Reliance Jio, got a boost from the much-awaited price hikes effective December. The full benefits of these price increases would start reflecting from the March quarter (Q4FY22). But subscriber additions are a key monitorable.

Overall, analysts expect 2022 to be a year of strong industry revenue growth led by the tariff hikes and the continued adoption of 4G services. Feature phone and smartphone additions, and newer launches can further aid growth. The ongoing scale-up of non-mobile businesses is expected to provide further lift to earnings.

Firm uptick
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Firm uptick

Second, RIL’s retail business is likely to show good recovery in Q3, helped by rising footfall. However, some adverse impact can be expected in Q4 due to covid-led curbs in India. Even so, new store additions and growing pace in e-commerce business may help. RIL’s recent acquisition of a 25.8% stake in Dunzo (hyperlocal delivery platform) will quicken delivery timings, strengthening the outlook for JioMart.

In its 2022 outlook, HSBC Securities and Capital Markets (India) Pvt. Ltd said telecom and retail business are expected to recover, though e-commerce and telecom will see high competition. Separately, refining margins have continued to rebound significantly. Benchmark Singapore gross refining margin (GRM) improved by $2.2 a barrel sequentially to $6.0/barrel in Q3, mainly led by improvement in diesel and ATF cracks.

“With closures offsetting new capacity additions over CY20-22 and IEA projecting a return to pre-covid level of demand in 2HCY22, we see sustainable Singapore GRM recovery by mid-CY22E," said Jefferies India Pvt. Ltd in a report on 9 January. RIL’s petrochemical volume, tracking 7% below pre-covid levels, should recover and support earnings, they added. Meanwhile, for investors, 2021 was a decent year with RIL’s shares rising by 19%, though lower than the 24% gain in the Nifty50 index. Hereon, unless big covid-led disruptions occur, recovery prospects for RIL’s segments seem stronger in 2022 vis-à-vis 2021. Last year, the retail business had only picked pace in the second half and so did refining. Both segments are rebounding now and domestic gas price and production outlook are upbeat.

Jefferies forecasts 23% EPS CAGR over FY22-24E driven by 36% CAGR in Reliance Retail and 21% CAGR in Jio. Although, RIL stock’s sharp appreciation suggests some of the optimism may well be captured in the price. “Key developments on new energy space will likely decide the direction for the stock in our view," said HSBC analysts.

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