Reliance Industries Ltd is set to report robust quarterly earnings, driven by a recovery in its core oil-to-chemicals (O2C) business and sustained momentum across the company’s consumer-facing telecom and retail businesses.
An improvement in refining margins and a rebound in the petrochemicals cycle are likely to fuel RIL’s earnings growth for the quarter ended March 31, 2024 (Q4FY24), analysts said. The Mukesh Ambani-led conglomerate is scheduled to report its earnings on April 22.
Consolidated revenue is expected to increase 11.4 percent from a year earlier to Rs 2.12 lakh crore, according to the average of 10 analyst estimates surveyed by Moneycontrol.
Analysts projected the conglomerate’s earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise 9.4 percent to Rs 38,440 crore, underpinned by robust growth in the O2C business. Sustained healthy growth in Jio and retail will be partly offset by the decline in upstream.
According to analysts at JP Morgan, Reliance also benefits from rising crude prices through its oil production from the fields along the country’s eastern coast, among other ways.
“A continued upward bias to oil should drive outperformance for RIL over the rest of the market and other Indian energy stocks,” the brokerage said.
Net profit for the quarter, however, is expected to drop 5.7 percent to Rs 19,299 crore on increased depreciation and high tax rate, according to the survey of brokerage estimates.
O2C EBITDA to rise; petchem cycle rebound expected
Reliance is likely to see a sharp jump in its O2C segment sequential earnings on improved gross refining margins (GRM), better petrochemical spreads, and higher refining throughput. According to JM Financial, RIL’s O2C EBITDA may rise 11.8 percent sequentially to Rs 15,700 crore even though petchem margin is still expected to remain subdued during the fourth quarter.
Nuvama Institutional Equities estimates RIL’s oil and gas EBITDA will rise around 41 percent, supported by increased production from the KG-D6 block, although partially offset by a 20 percent decline in deepwater gas prices.
Analysts at Centrum noted that earnings for this business are expected to moderate sequentially in the March quarter due to largely stable volumes and pricing. RIL’s exploration and production (E&P) business is expected to see a decline in EBIT due to higher costs.
Moreover, RIL’s ongoing capex of Rs 75,000 crore to expand its petrochemicals capacities should start commissioning from 2027, providing strong growth visibility beyond FY26, the brokerage said.
For Reliance’s non-O2C businesses, Prabhudas Lilladher expects telecom to show steady performance. The retail segment, the analysts stated, should show resilient profitability sequentially as well.
Robust subscriber addition to drive Jio’s growth
Reliance Jio’s strong subscriber addition trend is likely to continue in Q4FY24, driven by the aggressive push of its Jio Bharat phone. JP Morgan expects subscriber momentum to be better in Q4 compared to the previous quarter, with 1.15 crore net additions. ARPU growth, however, is expected to remain relatively stable compared with the preceding fiscal third quarter.
JM Financial expects Jio to report 1.05 crore net subscriber addition in the January-March quarter, according to JM Financial. This will be the eighth consecutive quarter of net subscriber additions, ranging between 5-11 million per quarter since Q1FY23, the brokerage said, adding that Jio’s ARPU is likely to improve by 0.4 percent sequentially to Rs 182.5 in 4QFY24.
“Hence, we expect 2.5 percent QoQ growth in Jio’s standalone revenue to Rs 26,200 crore, with EBITDA likely to grow 2.8 percent QoQ to Rs 13,800 billion,” said JM Financial in its report. Analysts at Kotak see a stable blended ARPU of Rs 182 as the rising FTTH (fiber to the home) contribution is offset by one lesser day in Q4FY24.
Green flags for retail on increased store footprint
Brokerages expect Reliance Retail to continue showing resilient performance in Q4FY24. The retail EBITDA is seen rising 21-28 percent from a year earlier on account of sustained momentum, higher footfalls, and an increase in the retail area. Sequentially, JM Financial sees Retail EBITDA growing by 0.4 percent on a high base of Q3FY24.
“We estimate Reliance Retail’s core retail revenue Rs 55,700 crore, a robust increase of 23 percent on-year, and EBITDA of Rs 6,100 crore, an increase of 28 percent YoY, with margins for the segment expanding 10 basis points sequentially to 7.4 percent,” said Nomura.
Lower operating costs for new energy verticals
According to Morgan Stanley, RIL’s new energy investments should be monetized from end-2024, and while competition with China’s supply chain is on most investors’ minds, demand creation by the government on solar panels from rooftop solar subsidies and tariffs should also be supportive to lower operating costs for RIL’s integrated energy vertical.
Key monitorable
In management commentary, investors will look for updates on the company’s new energy business’s commissioning schedule and guidance on capital expenditure and the debt profile. Additionally, clarity on the Rs 75,000 crore worth of announcements in the new energy business, growth in Retail store additions, and any pricing action in telecom will be monitored by investors, according to Motilal Oswal.
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