Reliance Industries Q4 Results Review: Outlook Remains Robust Across Verticals, Say Brokerages

Reliance Industries Ltd. reported a strong set of numbers in the fourth quarter of fiscal 2023, beating analyst estimates largely on the back of the oil-to-chemicals, retail, and oil and gas segments' performance.RIL’s large consumer capex in FY23 has solidified its industry-leading position, according to the brokerages. 'Operating leverage should translate into strong consumer earnings growth and cash flows from FY25 onwards,' JP Morgan said in a report.The Mukesh Ambani-led conglomerate’s consolidated fourth-quarter net profit rose 19.8% sequentially to Rs 21,327 crore, according to its exchange filing. That compares with the Rs 16,442-crore crore consensus estimate of analysts tracked by Bloomberg.RIL Q4 FY23 Highlights (QoQ)Revenue from operations fell 1.91% to Rs 2,16,376 crore against the estimated Rs 2,25,204 crore.Operating profit, or earnings before interest, taxes, and depreciation, rose 9% to Rs 38,440 crore as compared with the Rs 36,915.3-crore forecast.Operating margin stood at 17.76% versus 15.9%, as of December. Kotak Institutional Equities has reiterated its ‘buy’ rating on RIL, as the brokerage believes the outlook is robust for all key verticals. 'With 5G capex likely easing soon, we believe net debt should also peak out soon,' the brokerage said.Shares of Reliance Industries rose 0.50% to Rs 2,360.85 apiece as of 9:50 a.m., compared with 0.13% gains in the benchmark Nifty 50.Out of the 37 analysts tracking the company, 32 maintain a 'buy', three recommend a 'hold' and two suggest a 'sell' on the stock, according to Bloomberg data. The average 12-month consensus price target implies a potential upside of 18.5%. Here's what the brokerage has to say about Reliance Industries Q4 FY23 results: Emkay GlobalEarnings beat expectations, driven by O2C and tax credits; stable debt.RIL’s Q4 consolidated Ebitda and PAT were 4% and 20% above our estimates, respectively, led by an 8% beat in O2C Ebitda. It was also helped by a lower 12% tax rate on legacy credits.Earnings for Jio were in line but slightly lower than expected for the upstream oil and gas retail segments.O2C performance was driven by better polymer deltas, a decline in ethane prices, and Russian discounts.Retail revenue and Ebitda were up 19% and 33% year-on-year, respectively.Jio’s subscriber addition was 6.4 million, with average revenue per user, or ARPU, flat sequentially at Rs179.Net debt was flat sequentially on working-capital release, while capex was high at Rs 444 billion.We are constructive on RIL, given current valuations.The profitability outlook is stable-to-steady for O2C, upstream, and retail, while the Jio Financial Services listing (expected by October 23), the commissioning of battery-PV gigafactories (in 1-2 years), and 5G deployment are key positive triggers.We keep FY24/25E EPS and target price largely unchanged, building some delay in Jio tariff hikes (6%/2% ARPU cut and slight reduction in target multiple), which would be offset by a rise in other segment earnings.Our net debt assumes 5G spectrum. We retain 'buy' while hiking the target price to Rs 2,750 per share from Rs 2,349 per share on April 24. Bank of AmericaPAT beat as O2C shines: 5G capex to continue, watchout for visibility on JFSGoing ahead, oil demand is expected to continue its recovery path, with growth coming mostly from China, full recovery expected in H2FY23, US and India.In the Petrochemicals (Petchem) business, Indian polymer and polyester demand is expected to follow an economic growth trajectory.Petchem margins upside are likely to be constrained by volatile feedstock prices and supply overhangs.In telecom, Jio is looking to further accelerate its fixed wireless 'AirFiber' solution. Management targets reaching 100 million homes in the next 2–3 years with AirFiber.Jio is seeing a rise in consumption in cities where 5G is deployed. Hence, without any change in tariffs, management anticipates ARPU growth, which is plainly driven by consumption.In retail, management has a significant focus on increasing the share of non-food within the overall portfolio.RIL continues to expand regional brands. Even new commerce business was up three times year-on-year and continues to expand.It is currently operational in 2,600 cities. In our view, the results are not a key stock price driver. The key near-term drivers are capex and potential unlocking from the spin-off of its financial arm, Jio Financial Services, or JFS.We expect more visibility on JFS and business updates in the AGM likely in July or August.JP MorganRIL reported a large beat at the Ebitda and PAT level driven by very strong O2C performance and a lower tax rate.O2C, exploration, and production segments should drive earnings in H1FY24.Both Jio and retail were soft, as expected.FY23 was a year of investment—FY23 capex ex-spectrum stood at Rs 1.42 trillion, +42% yoy—given the surge in 5G Jio and retail acquisition spending.We welcome RIL’s comments on ‘Disciplined Capital Allocation and Maintaining Net Debt/Ebitda at less than one time and this should assuage investor concerns on leverage.We remain overweight on RIL, see attractive risk-reward, and believe the stock’s underperformance is unwarranted.In our view, RIL’s large consumer capex in FY23 has further solidified its industry leading position, and operating leverage should translate into strong consumer earnings growth/cash flows from FY25 onwards.The relentless FII sell-down remains a key near-term headwind for the stock. Kotak Institutional SecuritiesRIL’s Q4FY23 consolidated Ebitda up 9%. QoQ was 5% ahead of our estimates. The beat was mainly due to the strong performance of the O2C Ebitda which was up 8%.Digital services fared well with 3% Ebitda beat, but R-Jio was in line, while retail and E&P were marginally below estimates.Recently, the refining margins have corrected sharply, but we remain sanguine on refining. Further, the strong petrochemical recovery should cushion O2C earnings.Capex further rose to Rs 44,400 crore in Q4 versus Rs 37,600 crore in Q3. However, the reported net debt of Rs 1.1 lakh crore was flat QoQ.With 5G capex likely peaking soon, we believe net debt has likely peaked. Reiterate 'buy' with a revised face value of Rs 2,800 compared with Rs 2,900 earlier.The FY25 earnings estimates are largely unchanged as lower gross refining margins are offset by stronger petchem spreads.Our enterprise value is largely unchanged. However, with higher capex and a higher effective net debt of Rs 2.9 lakh crore as of FY23-end, we lower our FV to Rs 2,800 from Rs 2,900 earlier.We reiterate our 'buy' rating on RIL, as the outlook remains robust for all key verticals and with 5G capex likely easing soon, we believe net debt should also peak out soon.JefferiesEbitda beat Jefferies estimates, led by O2C and Jio, while retail was a bit lower.Retail's scorching space addition should aid around 30% Ebitda Compounded Annual Growth Rate but capex was elevated.Jio generated healthy free cash flow with elevated 5G capex, possibly opening the next leg of growth.Recent softness in refining margins could reverse with healthy US driving season demand and a Chinese reopening.The valuation is favourable, though net debt rose. Management guidance, however, allayed leverage concerns.Upgrade FY24/25E Ebitda 3%, maintain ‘buy’ with price target revised upwards to Rs 3,125 from Rs 2345.We see limited downside to our 16% Ebitda growth projection in FY24E with the tariff hike pushed out to end-CY23.Forward Ebitda multiples are the lowest since Covid and are at a discount to the five-year average.We see little value being ascribed to e-commerce, green energy, FMCG, financial services, and new petchem at the current market price.

Reliance Industries Q4 Results Review: Outlook Remains Robust Across Verticals, Say Brokerages

RIL’s large consumer capex in FY23 has solidified its industry-leading position.

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