Home / Markets / Stock Markets /  Should you buy RIL shares after Q2 results? 3 triggers to fuel future performance

Oil-to-telecom conglomerate Reliance Industries (RIL) will be in focus this week's trading session after its Q2 results. RIL missed estimates in terms of profitability during Q2 while revenue picked up due to growth across major segments. O2C segment margins slipped, however, the retail and telecom business witnessed a record operating profit during the quarter. Because RIL is among the leading players in its product and services, this gives comfort in the stock for long-term value creation. There are 3 triggers that are likely to influence RIL's future performances.

On a consolidated basis, RIL posted a net profit of 13,656 crore in Q2FY23 slightly lower from 13,680 crore in the corresponding quarter of last year (Q2FY22). Sequentially, RIL's profit dropped by 24%. However, revenue rose by 33.7% to 2.32 lakh crore in Q2FY23 compared to 1.74 lakh crore in Q2 of the previous fiscal.

Among the key highlights of Q2, the company's Reliance Retail and Jio recorded a record quarterly EBITDA of 4,404 crore and 12,011 crore up by 51.2% yoy and 29.2% yoy respectively. Also, Reliance Retail becomes the first Indian retailer with over 50 million square feet of retail space. Further, Oil and Gas business witnessed 3 times jump in quarterly EBITDA. However, O2C business EBITDA dipped by 5.9% yoy to 11,968 crore in Q2FY23, but revenue climbed 32.5% yoy. The company's exports were around 86,382 crore higher by 57.5% yoy.

Last week, on Friday, RIL shares closed at 2,471.95 apiece down by 1.16% on BSE. RIL is the largest company in terms of market share with a valuation of over 16.72 lakh crore.

On RIL's Q2 results, research analysts at ICICI Direct in their report said, "RIL’s results were lower than estimated on the profitability front. Revenue was up 33.7% YoY to 2,32,863 crore as all major segments reported revenue growth. It grew 4.4% QoQ mainly led by the retail segment."

However, the analysts note added that RIL's EBITDA was at 31,224 crore, up 20% YoY (down 17.8% QoQ). EBITDA growth YoY was driven by the retail segment (up 51% YoY) and digital service (up 28.6% YoY). O2C segment margins were down 5.9% YoY, 40% QoQ on account of special additional excise duty levied on the export of fuels.

Should investors invest in RIL shares post-Q2 results?

According to ICICI Direct note, long-term prospects and dominant standing of RIL in each of its product & service portfolio provides comfort for long-term value creation. RIL’s consumer business will be the growth driver, going ahead. However, refining product cracks have seen correction compared to peaks witnessed in Q1FY23.

"We maintain our HOLD rating on the stock," the analysts note added, "We value RIL at 2,700 on an SoTP basis."

ICICI Direct in its report highlights key triggers for future performances of RIL. These are:

- Increment value accretion from the ‘digital ecosystem’ that will be captured at the Jio Platforms (JPL) level.

- Steady FCF generation in the retail segment would enable the company to maintain debt at lower levels and improve its ability to invest in future inorganic opportunities.

- Rise in GRMs will be the key to lift O2C earnings. Steady cash flow from traditional business to enable RIL to invest in new energy verticals.


Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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