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Business News/ Markets / Stock Markets/  Reliance Industries shares tumble ahead of Q4 earnings. Good buying opportunity?
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Reliance Industries shares tumble ahead of Q4 earnings. Good buying opportunity?

Reliance Industries Ltd may see operationally weak results in Q4 due to lower diesel margins partly compensated by higher petchem margins

Reliance Industries chairman Mukesh Ambani.Premium
Reliance Industries chairman Mukesh Ambani.

Shares of Reliance Industries Ltd (RIL) fell in Thursday's trade ahead of the oil-to-telecom major's March quarter results on Friday, 21 April. Analysts on an average expect the Mukesh Ambani-led company to report a muted set of quarterly results.

RIL may see operationally weak results due to lower diesel margins partly compensated by higher petchem margins.

The shares of RIL were trading 0.47 per cent lower at 2,340.90 during noon deals. The stock has risen 6.44 per cent in the last one month, while on a year-to-date basis, the stock has fallen 9 per cent.

Here are 5 things to watch out for in RIL results -

Profitability

RIL's consolidated PAT is expected to increase by 7 per cent sequentially to 16,960 crore due to higher Oil-to-chemicals (O2C) earnings and decent growth from Jio and retail business. Overall revenues are expected at 23,455 crore, up 2 per cent QoQ.

RIL remains well placed to benefit from strength in refining margins due to geopolitical disruptions along with higher gas profitability; volumes to rise to 30mmscmd from 19mmscmd in Q1FY24. Also dominant position in retail and telecom businesses will continue to drive RIL’s profitability.

Ebitda

HDFC Securities expects RIL to report EBITDA of 378 billion (over 20.4 per cent YoY and over 7.1 per cent QoQ), supported by a steady performance from the retail and telecom segments.

O2C EBITDA/tonne of crude processed is estimated to increase by 4 per cent QoQ, owing to an improvement in petroleum product cracks and an improvement in petchem margins QoQ. We expect EBITDA to increase by 14 per cent YoY to 42.1 billion from its retail segment. We have estimated 5mn subscriber addition and ARPU of 179 in Q4.

Windfall tax impact

"RIL results will be lower due to QoQ decline in diesel, ATF spreads despite factoring in lower windfall tax impact. We estimate refining throughput of 16.5 MTPA, (16.2 MT in Q3). Petchem profitability will improve QoQ due to demand recovery post China reopening. We expect steady Jio performance (3.3 per cent QoQ revenue growth and 2.1 per cent QoQ ARPU hike), while retail segment profitability should be resilient," said Avishek Datta – Research Analyst, Prabhudas Lilladher Pvt Ltd.

Key monitorable

Brokerage Motilal Oswal said further clarity on 75,000 crore announcements in the new energy business, growth in retail store additions, and any pricing action in telecom segment would be key monitorables. ICICI Securitues expect commentary on ARPU trajectory, Jio Fiber to be important.

FMCG

RIL's aspirations in mainstream FMCG verticals has gained significance, given its access to the retail distribution base (3 million outlets), backend infrastructure (for JioMart) and strong marketing network, said brokerage Emkay Global.

The company has adopted a mixed portfolio strategy, further to which it is incubating organic brands, acquiring scalable brands, expanding private labels (in its own retail channels) nationally and entering into strategic partnerships.

RIL aims to become the 'HUL of today', with target of achieving Rs500bn worth sales in coming 5 years, as it looks to expand its distribution to 10mn outlets. We see its quest to gain share of the FMCG pie will disrupt strategies of category incumbents.

How to trade the stock?

Prabhudas Lilladher has lowered its target price to 2,825 from 2,870 earlier as the brokerage has lowered Jio's ARPU to Rs178/196/236 for FY23/24/25E.

Brokerage Sharekhan prefers RIL among downstream players given strong growth outlook for consumer-centric business (retail and Jio businesses). RIL's reasonable valuation and likely further value unlocking in digital and retail businesses would add to shareholders' returns in the coming years.

RIL is also favourable for investment given run-up to AGM, the brokerage said.

JM Financial has maintained a ‘Buy’ rating on the RIL stock with a target price of 2,900 as the stock is closer to its bear-case valuation of 2,000 per share, while it expects RIL's EPS to grow at a strong 13-15 per cent CAGR over the next 3-5 years given its industry leading capabilities across businesses.

RIL has an average broker target of 2,891.55, implying an upside potential of 23.26 per cent for the stock from the current levels, as per publicly available data with Trendlyne.

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ABOUT THE AUTHOR
Meghna Sen
Business journalist tracking markets, companies, economy and crypto for Livemint. She has 6 years of experience with online and print publications. Email: meghnasen08@gmail.com
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Published: 20 Apr 2023, 01:13 PM IST
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