Reliance Industries – Broad-Based Earnings Strength; Free Cash Flow Remains Negative: ICICI Securities

ICICI Securities Report

The FY23 annual report of Reliance Industries Ltd. throws up some interesting data points:

1. Capex of Rs 1.4 trillion had grown by a material Rs 423 billion in FY23,

2. resultant, net debt (including spectrum and other deferred payment liabilities) expanded sharply to Rs 1.05 trillion, despite a material Rs 428 billion of increase in cash plus equivalents for the year,

3. net working capital (excluding cash) increased by Rs 220 billion, driven by a sharp uptick in inventories,

4. free cash flow generation remains elusive, despite sharply higher profitability – FCF yield of negative 1.2% versus an average negative yield of 3.6% over FY21-22.

Overall, earnings prospects remain strong for RIL, but we have revised down FY24/25E earnings per share by 2% each, target price reduced by 1% to Rs 2,650/share (from Rs 2,670/share). Maintain 'Add' rating.

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