RIL’s Q4 performance keeps brokerages bullish on the company’s prospects

• Reliance Industries’ consumer businesses are expected to drive earnings growth going forward.
• However, RIL’s aggressive expansion in its retail and 5G investments have led to its capital expenditure rising to an all-time high in FY23.
• Brokerages maintained their bullish outlook on the company, noting that the leverage levels are expected to remain comfortable thanks to strong cash flows.

In spite of its Q4 earnings beating analyst estimates, RIL stock traded flat on Monday as the street continues to remain cautious on account of its growing capex. In March, the stock touched a 52-week low of ₹2,180, and has been trading flat since the beginning of April. And, the recent earnings report hasn’t changed the trajectory.

In the morning trade on Monday, its shares rose 0.2% to ₹2,354 and gave up most of the early morning gains due to profit booking.

Reliance Industries Q4 net profit rose 19% YoY to ₹19,299 crore due to steady growth in the consumer businesses, and its revenues grew 2% to ₹2.16 lakh crore.

For the full FY23, RIL reported a 9.9% rise in net profit to ₹66,702 crore, while the earnings before interest, taxes, depreciation and amortization (EBITDA) was ahead of brokerage estimates at ₹1.4 lakh crore. The oil-to-data giant’s FY23 revenue grew 23.7% to ₹8.93 lakh crore.

Capital expenditure at an all-time high, funded by strong cash flows

While the topline and bottomline growth was ahead of estimates, RIL’s capital expenditure also rose to an all-time high of ₹1.4 lakh crore due to acquisition of 5G spectrum and rollout of 5G services. This also led to a 43% YoY rise in depreciation to ₹11,456, which impacted the company’s bottomline.

However, brokerages do not seem to be concerned even as the capex and EBITDA both came in at ₹1.4 lakh crore for the whole year. “Capex rose to $17.6 billion in FY23 but this was fully funded by cash profits,” said a report by Goldman Sachs, adding that this gives a “comforting leverage guidance”.

Brokerages also maintain that going forward, Jio-related capital expenditure will climb down since the company has front-loaded it as it seeks to complete the pan-India rollout of 5G by the end of 2023.

Brokerages see a 25% upside in the next 12 months

Analysts believe that RIL’s consumer business will be a key growth driver going forward. A rise in gross refining margins will be key for growth in the company’s O2C earnings, and also help it finance the new energy ambitions while maintaining debt at comfortable levels.

Brokerages maintain their bullish outlook on the company, with an average target price of ₹2,954 in the next 12 months, presenting an upside of around 25%.


Source: Brokerages

Retail business steady, but softness observed in certain segments

Reliance Retail posted a 12.9% growth in net profit to ₹2,415 crore in the March quarter aided by growing footfalls, new store additions and high conversions.

“In retail, with very sharp retail space growth, the rising share of new commerce and FMCG forays, growth will likely sustain at a fast clip,” said a report by Kotak Institutional Equities.

In FY23, the company opened over 3,300 stores taking the total count to 18,040 stores. However, as they added more stores and warehousing space, depreciation went up by 91% to ₹1,188 crore during the quarter along with finance costs that shot up by 148%.

Reliance Retail is yet to fully ramp-up its operations from stores absorbed from Future Retail, which has led to its per square feet revenue to remain below the pre-Covid levels, said Jefferies.

While Reliance Retail sounded excited about its foray into FMCG and beauty space, high capex due to expansion would have resulted in higher debt levels, say brokerages. “While we like Reliance Retail’s positioning in Indian retail, we remain perplexed with poor disclosures which leaves a lot to imagination,” it said.

Jio: Adding subscribers but with low yields

Reliance Jio reported a net profit growth of 1.7% sequentially to ₹4,716 crore in March quarter from ₹4,638 crore last quarter. Its revenue from operations also grew marginally by 1.7% sequentially to ₹23,394 crore as compared to ₹22,998 crore in the previous quarter.

“Although subscriber additions were strong and higher than expected, revenue growth was sluggish, due to disappointing ARPU growth (flat QoQ). We believe lower ARPU growth could be attributed to Jio doing away with most of the low end users and absence of any direct tariff hike in the quarter,” said Nuvama Institutional Equities in a report.

The telecom business is currently focused on 5G roll out across India by December 2023. So far Jio has extended coverage of its 5G services to over 2,300 cities/towns across India.

“In Jio, the near-term focus will be 5G and accelerated fixed broadband rollouts. As customer engagement picks up, we believe there is a case for tariff hike, but we conservatively assume tariff hike only after 2024 general elections,” said a report by Kotak Institutional Equities.

We call it the Big Daddy.The Giant and carries a heavy weight in Index.$RELIANCE.NSE posted it's highest ever net QOQ profits also a gain of 14% which is around YOY which was led by O2C business.Reliance with a balanced capital allocation becomes the favourite long term stock amongst the investor.As mentioned their O2C business saw good improvement and it will continue its headway along with their exploration, production, telecom and consumer segment business.Though Jio and Retail business has the major debt component however once 5G business flourishes there would be a decent cash flow.They will be steady business, for now it has shown EBIDTA growth.Retail's core business at 35x EV/EBITDA and has assigned 5x to Connectivity on FY25E Ebitda to arrive at its valuation of Rs 1,354 – after excluding the recent 10 per cent stake sale.$RELIANCE.NSE is going to be a relative outperformer in the coming decade.Happy investing :)

— (@PritiTiwari) April 24, 2023

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RIL’s Q4 net profit of ₹19,299 crore beats analyst expectations, driven by retail