Reliance Q1 Results: Share price falls 2%; here's what top domestic and global brokerages say | Mint
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Business News/ Markets / Stock Markets/  Reliance Q1 Results: Share price falls 2%; here's what top domestic and global brokerages say

Reliance Q1 Results: Share price falls 2%; here's what top domestic and global brokerages say

Reliance share price: Reliance Industries reported a 10.8 per cent decline in net profit for Q1FY24, due to weak performance in its oil-to-chemical business. Shares of RIL are down about half-a-per cent for the year.

Most brokerage firms maintained their views on RIL stock after RIL Q1 results. (REUTERS)Premium
Most brokerage firms maintained their views on RIL stock after RIL Q1 results. (REUTERS)

It appears that the June quarter earnings of the diversified conglomerate Reliance Industries (RIL) have disappointed the Street as RIL's share price dipped over 2 per cent in early deals on Monday (July 24).

On Friday, RIL reported its Q1FY24 scorecard which showed its consolidated revenue and profit declined during the quarter because of the weak show of O2C (oil-to-chemical) business.

Reliance Q1 results 

Reliance Industries reported a net profit of 16,011 crore, down 10.8 per cent, compared to 17,955 crore in the corresponding period last year. The gross revenue from operations during the first quarter of the current fiscal came in at 231,132 crore, reporting a decline of 4.6 per cent, compared to 242,529 crore in the year-ago period.

Its earnings before interest, taxes, depreciation, and amortization (EBITDA) during the June quarter stood at 38,093 crore, compared to 37,997 crore in the year-ago period. The company's overall growth was offset by O2C performance despite steady growth in retail and telecom arms.

Read more: Reliance Q1 Results: Net profit declines 10% to 16,011 crore on weaker O2C biz, revenue down 4%

Brokerages On RIL post Q1 Results

Domestic brokerages' views

Most brokerage firms maintained their earlier views on the stock after RIL's Q1FY24 results. However, there were some tweaks in EBITDA and earnings per share (EPS) estimates, but most brokerage firms remain positive about the stock.

Among the domestic brokerage firms, Motilal Oswal Financial Services maintained a buy call on the stock with a target price of 2,935.

The brokerage firm pointed out that segment-wise, the consumer business has been a mixed bag with retail seeing moderate growth but likely to witness gains from the Future group footprint.

Motilal expects growth in telecom will continue to soften with a higher base and lower probability of tariff hikes in the near term as well as intensifying 5G spending.

Motilal said while upstream production is projected to increase to 30mmscmd in the coming months from 20.9mmscmd in Q1FY24, concerns remain on refining and petrochemicals margins going forward.

Motilal values Reliance Retail’s core business at 40 times EV/EBITDA on FY25E and Connectivity at 5 times to arrive at a valuation of 1,668.

"Reliance Retail’s value in RIL shares comes to 1,500 (for its 89 per cent stake). Our premium valuation multiples capture the opportunity for rapid expansion in its retail business and the aggressive rollout of digital platforms," Motilal said.

For RJio, the brokerage firm said it broadly maintained its FY24/FY25 estimates factoring in 11 per cent revenue CAGR and 14 per cent EBITDA CAGR over FY23-25.

"RJio is valued at an EV/EBITDA multiple of 12 times on FY25E EBITDA. The potential tariff hikes, market share gains from VIL and opportunity in Digital offer an option value of 150, thus arriving at a valuation of 750 (adjusted for its 66 per cent stake)," said Motilal Oswal.

"Using SOTP, we value the refining and petrochemical segment at 7.5 times FY25E EV/EBITDA to arrive at a valuation of 904 for a standalone business. We ascribe an equity valuation of 750 to RJio and 1,500 to Reliance Retail. The valuation of the new energy has arrived at its BV (book value), implying a price of 16. Our target price is adjusted for JFS valuation. We reiterate our buy rating with a target price of 2,935," said Motilal Oswal.

Nuvama Wealth Management maintained a buy call on the stock but revised the target price to 3,088 from 3,205. Nuvama said RIL’s new energy shall unleash the next leg of growth opportunity.

While most brokerage firms maintained their earlier views, Kotak Institutional Equities downgraded the stock to an 'add' from a 'buy and cut the target price to 2,700 from 2,800, discounting the recent rally in the stock and observing a lack of near-term catalysts.

"Post JFS demerger, we now value RIL on higher share count (6.765 billion shares including treasury shares) and as a result, our earlier fair value of 2,800 would have been lower by 6 per cent (nearly 170). We roll forward our valuation to June 2025E (from Mar 2025E) and now value R-Jio on DCF, implying 8.5 times March 2026 EV/EBITDA (versus 8 times EV/EBITDA for ongoing business and optional value of about 570 billion for duopoly). Our revised fair value is 2,700. Post the recent rally on JFS demerger, and lack of near-term catalysts, the upside seems limited and we downgrade RIL to an 'add' from a 'buy'.

The brokerage firm lowered its FY24 and FY25 consolidated EBITDA estimated by nearly one per cent each, largely on the back of an about 4-5 per cent cut in Reliance Retail EBITDA.

"Our EBITDA for RIL’s other key segments is largely unchanged. Our FY2024-26E earnings are lower by 1-2 per cent, while EPS declines by higher 7-8 per cent as we now take fully diluted shares (including treasury shares) for our EPS and fair value calculation post-JFS demerger," said Kotak.

While Kotak tweaked its estimates, it pointed out that the outlook for each key business of RIL remains positive.

"In refining, while margins have been volatile and declined from recent highs, the near-term outlook is relatively robust. With declines in fuel cracks, earlier concerns about export tax have been reduced. In chemicals, while downcycle continues, we see gradual margin recovery. Reliance is relatively better placed in our view with its feedstock flexibility advantage E&P (exploration and production) outlook is strong," said Kotak.

Global brokerages' views

Most global brokerage firms also maintained their earlier views on the stock after RIL's June quarter earnings.

As reported by CNBC-TV18, global brokerage firm Jefferies maintained its buy recommendation on RIL with a target price of 2,935, citing RIL's EBITDA came in line with estimates with all segments in line. However, retail's growth disappointed while the margin improved. Jefferies said the risk-reward is balanced after the recent rally.

Citi also maintained a buy call on Reliance Industries' stock with a target price of 2,750, reported CNBC-TV18. Citi said Q1FY24 consolidated EBITDA was broadly in-line. "Key segments have a soft near-term outlook which could preclude earnings upgrades," CNBC-TV19 quoted Citi saying so about RIL.

JPMorgan has an overweight rating on the stock with a target price of 3,040, reported CNBC-TV18. JPMorgan believes, as reported by CNBC-TV18, the downgrade cycle is likely behind. It raised FY24-25 EBITDA estimates by 1.5-4.1 per cent but cut the earnings per share (EPS) estimates by 5.4-2.9 per cent on a higher tax rate.

"Believe the stock offers multiple potential catalysts over the next 18 months. Upcoming AGM could likely give more visibility," JPMorgan said, according to CNBC-TV18.

On the other hand, Macquarie, as per CNBC-TV18, maintained an underperform rating on Reliance with a target price of 2,100, citing the company reported a subdued Q1 with a lower margin in cyclical O2C business a drag; FY24-25 EPS estimates remain 14-18 per cent below consensus.

Shares of Reliance Industries are down about half-a-per cent for the year while the equity barometer the Sensex has gained about 10 per cent in the same period.

Shrikant Chouhan, Head of Research (Retail) of Kotak Securities said, “Reliance Industries, technically, is correcting from the highs after the demerger of the business. It could fall to 2,470 and 2,430 in the worst case scenario, while resistance would be at 2,530 and 2,590."

Read more: Why Reliance share price may see Infosys like sell-off — explained

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts and broking companies, not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 24 Jul 2023, 09:22 AM IST
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