29 February 2024

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Reliance Industries

Reliance Industries Q1 preview: Jio and stable retail likely to boost; PAT may decline due to weak O2C business, according to BofA Securities

According to BofA Securities, Reliance Industries Ltd’s (RIL) revenues and earnings before interest, taxes, depreciation, and amortisation (EBITDA) will fall quarter on quarter (QoQ) in Q1FY24 (April to June), primarily due to oil-to-chemicals O2C business, which will be offset partially by continued steady growth in retail and telco business.

The bottom line is expected to decrease to 16,160 crores or 10% annually, and 16% from the March quarter, according to the global brokerage business. Both sequentially and yearly, EBITDA will fall by 1%. Consolidated revenue may fall 7% year on year and 4% sequentially to 2.08 lakh crore.

When examining the performance of the O2C company in the first quarter of FY24, the brokerage firm indicated that it expected O2C EBIT to fall 6.1% QoQ, owing mostly to lower gross refining margins (GRMs) in the refinery business offsetting benefits from cheaper Russian oil. Petchem EBIT is projected to be flat QoQ due to a lack of pricing power (ample supply and insufficient demand).

“We expect Oil & Gas EBIT to be largely stable, with a 1.6% QoQ increase in revenues,” the brokerage predicted.

Reliance Industries

According to the brokerage, Jio would report robust net additions of 7 million in the first quarter, compared to 6.4 million in the fourth quarter of FY23, and a relatively flat average revenue per user (ARPU), resulting in 1.6% QoQ revenue increase. Unlike Bharti, Jio did not provide any incentives for recharging at the lowest possible rate. Furthermore, the brokerage expects that as Jio’s 5G network spreads, fewer consumers would fill up during this IPL-heavy quarter because 5G provides better speeds.

The brokerage anticipates consistent growth in the retail sector, with 22% year-on-year growth (19% in 4Q), underpinned by continued development in the food and fashion industries. According to the brokerage model, EBITDA margin was 7.1% year on year, while EBIT margin was 5.4%.

“Overall, this results in a 2% QoQ decrease in EBIT.” However, a slightly higher QoQ interest expenditure and an estimated high take-rate of c.24% (12% in 4Q) result in a 16% QoQ fall in PAT,” the brokerage stated.

Also read: YES Bank shares rise as it reports 7.5% growth in first-quarter advances

Focus will most likely be on AGM expectations rather than Reliance Industries 1Q results

The brokerage added in its research that it thinks focus would switch from anticipation of significant announcements at the annual general meeting (AGM), which is slated to take place in August, to shifting away from 1Q results. RIL has utilised its AGM in the past to make big announcements about value-unlocking catalysts and future growth plans.

“We anticipate similar announcements this year, particularly in the areas of Jio Financial Services (JFS), clean energy, and digital business.” RIL stock has typically outperformed prior to the AGM in the majority of cases. “We maintain our Buy rating on RIL because we believe it is well-positioned in all three businesses and has multiple levers for upside in the next 12-18 months,” said the brokerage.

On the BSE, Reliance Industries closed 1.87% higher at 2,633.05 per share on Thursday.