RIL’s Q3 to be a mixed bag: Muted growth seen in O2C, robust performance projected for retail and Jio

• An average of brokerage estimates pegs Reliance’s consolidated net profit at ₹15,201 crore in Q3 FY23, down 18% YoY from ₹18,549 crore in Q3 FY22.
  
• Reliance’s consumer businesses, retail and Jio, are expected to drive the conglomerate’s earnings in Q3.
  
• While the retail and Jio segments are expected to report a year-on-year increase in earnings before interest, taxes, depreciation and amortization (EBITDA), the oil segment is expected to report a decline.
  
• Amongst the key aspects to watch out for during Reliance’s Q3 earnings would be developments in the company’s ₹75,000 crore new energy ambitions, telecom tariff hikes and store additions in its retail segment.
  

Mukesh Ambani-led Reliance Industries’ December-quarter is expected to be a mixed bag with muted performance from its oil-to-chemicals (O2C) business likely weighing down a good show expected from the consumer-facing retail and telecom segments.

An average of brokerage estimates pegs Reliance’s consolidated net profit at ₹15,201 crore in Q3 FY23, down 18% YoY from ₹18,549 crore in Q3 FY22.

Revenue, on the other hand, is expected to grow 15% YoY to ₹2.13 lakh crore in Q3 FY23, against ₹1.85 lakh crore in Q3 FY22, according to analysts’ average estimates.

“We expect Reliance Industries to report a 6% quarter-on-quarter rise in earnings before interest, tax, depreciation and amortization (EBITDA) as oil-to-chemicals improved on lower duties and strength in consumer segments,” said Jefferies.

O2C margins to remain under pressure

Petrochemical refining margins weakened to multi-year lows on weak demand outlook and falling crude oil prices in the October to December period. Singapore gas cracks declined to $6 per barrel in Q3 from $7 in Q2.

“Benchmark Asian Complex refining margins declined quarter-on-quarter to $6 per barrel in Q3 (Q2 FY23: $7per barrel) as rising Chinese exports weighed on spreads, even as global diesel inventories remained low,” said a Jefferies report.

This segment, which makes up for 60% of RIL’s earnings, is expected to drag down the performance of the conglomerate.

The O2C segment EBITDA is expected to decline 5% YoY to ₹12,893 crore, as per Jefferies.

However there has been some relief that’s been provided by the government, which reduced the windfall taxes it levied in July on domestic oil and gas producers. Since the taxes are directly linked with global crude oil prices, it will bring little relief to the margins of RIL, which imports crude and exports refined products. Sequentially however it might make an impact.

Analysts at Nomura peg Reliance’s refining margins in Q3 at $10, improving from $8.9 in Q2. Windfall taxes on crude oil softened from ₹23,260 per tonne in July 2022 when it was introduced, to ₹1,900 per tonne now.

Festive cheer from the retail segment

While Dmart’s margins slipped to a multi-year low in the third quarter earnings announced last week, analysts expect a good show from Reliance Retail backed by festive season performance in the fashion and grocery segments.

In addition to festive demand, store additions too are expected to drive the segment’s EBITDA – brokerage estimates peg the sequential growth to be between 8-10%.

On a year-on-year basis, the EBITDA of this segment is expected to report a 27% growth at ₹4,857 crore, according to Jefferies.

Analysts say that Jio’s average revenue per user (ARPU) might improve by a modest 1.8% sequential increase to ₹179-180. Most brokerages also believe that the teleco’s net subscriber additions for the quarter stand at around 5-8 million.

Jefferies expects Jio’s EBITDA to rise 24% on year to ₹12,636 crore.

What to watch out for – new energy, telecom tariff hikes & retail store additions

Amongst the key announcements to look out for in Reliance’s Q3 earnings would be clarity on the company’s ₹75,000 crore new energy business, telecom tariff hikes and retail store additions.

With the government having approved the Green Hydrogen Mission to develop a capacity of 5 million metric tonnes along with an associated 125-gigawatt renewable energy capacity addition by 2030, developments in Reliance’s green energy ambitions will be amongst the key aspects to watch out for.

Apart from this, the highly anticipated tariff hikes in the telecom segment will also be worth looking out for, especially now that Jio has rolled out 5G in 134 cities around the country.

Lastly, developments in the conglomerate’s retail business, including store additions, and plans to integrate Metro Cash & Carry, will be amongst the key things to look out for. In December, Reliance’s retail arm Reliance Retail Ventures said it had agreed to acquire Metro Cash & Carry for ₹2,850 crore.

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