Reliance Industries Q2 Results Review - Robust Earnings From Energy Businesses: HDFC Securities

HDFC Securities Institutional Equities

Our 'Add' rating on Reliance Industries Ltd. with a price target of Rs 2,515/share is premised on-

1. recovery in the oil-to-chemical businesses;

2. Ebitda growth in the digital business, driven by improvement in average revenue per user, subscriber addition, and new revenue streams; and

3. potential for further value unlocking in the digital and retail businesses.

RIL’s consolidated Ebitda at Rs 410 billion (+32% YoY; +8% QoQ, our estimate: Rs 385 billion) and adjusted profit after tax at Rs 174 billion (+27% YoY, +9% QoQ) came in above our estimates, supported by better-than-expected performance from its energy businesses.

Oil to chemicals segment: O2C Ebitda improved +6% QoQ to Rs 163 billion, driven by an improvement in product spreads and PVC margins. However, weak polyethylene, polypropylene, and polyester chain deltas partially offset this. Crude throughput came in higher-than-expected at 20 million metric tonne (+8% YoY, +2% QoQ), while production meant for sale stood at 17.1 mmt, (+6% YoY, -1% QoQ).

Oil and gas: Revenue grew sharply to Rs 66 billion (+72% YoY, +43% QoQ) while Ebitda improved to Rs 48 billion (+50% YoY, +19% QoQ), owing to higher price realisation and production from the KG D6 block.

The average KG D6 production for Q2 was at 28.3 million metric standard cubic metre per day, up +49% YoY, +35% QoQ, with current overall production from the KG D6 block trending at ~30 mmscmd.

Reliance Jio Platforms Ltd.: Revenue improved to Rs 315 billion (+11% YoY, +3% QoQ) due to higher ARPU of Rs 181.7 (+2.5% YoY, +1% QoQ) and net subscriber addition of 11.1 million. The total customer base stands at 459.6 million, as of Q2.

Reliance Retail: Net revenue grew 19.5% YoY to Rs 689 billion. Core retail revenue is estimated to have clocked ~24% YoY to ~Rs 521 billion (our estimate: Rs 507 billion). Footfalls were up 41% YoY at 260 million. Digital plus new commerce contribution remains healthy at 19% of core retail sales. Ebitda grew 30.8% YoY to Rs 56.1 billion (our estimate: Rs 51.21 billion). Retail Ebitm expanded 18 bps YoY to 6.1% (our estimate: 6%). Reliance Retail added 461 stores in Q2, taking the store count to 18,650 and the retail area stood at 71.5 million square feet.

Debt: RIL’s Q2 consolidated net debt declined QoQ; however, it remains elevated at Rs 1,177 billion (versus net debt of Rs 1,266 billion, as of June 2023), owing to accelerated capex in retail operations and 5G network rollout. Total capex incurred in Q2 was Rs 388 billion.

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