Jio Platforms' IPO remains the key driver for Reliance Industries stock

Reliance Industries beat Q1 expectations as O2C and Jio powered earnings growth, but retail margins remained under pressure amid digital commerce investments

India’s most valuable company, Reliance Industries (RIL), delivered a better-than-expected operational performance in the June quarter (Q1FY27). A sequential recovery in the oil-to-chemicals (O2C) business and robust gains in the telecom (Jio) segment helped the company post a 10.7 per cent year-on-year growth in consolidated operating profit and a 7.6 per cent sequential improvement. 

Topline growth of 25 per cent was also driven by the O2C business, which reported sales growth of 30 per cent, while Jio and retail posted growth of 12 per cent each. Unlike the March quarter, when consolidated net profit missed estimates due to the energy vertical, reported net profit beat expectations in the June quarter. The 16 per cent growth in attributable adjusted profit was driven by higher operating profit and lower minority interest owing to Jio-bp losses. 

The disappointment in the quarter came from Reliance Retail, where reported net revenue growth of 8 per cent fell short of Street estimates. Adjusted for the RCPL demerger, revenue growth stood at 12 per cent. Operating profit also missed estimates due to the higher share of lower-margin hyperlocal grocery offerings. 

Motilal Oswal Research has raised its FY27 net profit estimate for RIL by 7 per cent, led by higher other income and lower minority interest, while keeping its FY27-28 operating profit estimates broadly unchanged as higher O2C gains are offset by losses in Jio-bp. Analysts led by Aditya Bansal have reiterated their buy rating with a revised target price of ₹1,550 (earlier ₹1,690), applying a 25 per cent holding company discount to RIL’s 66.4 per cent stake in Jio Platforms. 

While the June quarter beat is positive, the key triggers for the stock remain progress on the listing of Jio Platforms and execution of its new energy and consumer businesses. At the current price, the stock, which has underperformed the Nifty50 over the past year, is trading at just under 20 times its FY28 estimated earnings. 

O2C was the star performer in the June quarter. Analysts led by Sudeep Anand of Systematix Research said the segment reported its strongest quarterly performance in four years, benefiting from exceptionally strong fuel cracks, favourable downstream margins and crude sourcing optimisation. The brokerage has maintained a positive long-term view on RIL, supported by its diversified business model, multiple value-unlocking catalysts and strong execution across its consumer and energy businesses. It has a buy rating with a target price of ₹1,700. 

The gains in O2C revenue, however, did not translate into higher margins or earnings growth. The segment’s performance was dented by under-recoveries in domestic fuel retailing, costs related to the special additional excise duty, higher crude premiums, freight and insurance costs, a 10 per cent decline in volumes, and LPG diversion. Segment margins slipped 100 basis points year-on-year to 8.4 per cent from 9.4 per cent. 

The telecom business performed broadly in line with expectations, with standalone revenue growing 10.8 per cent year-on-year and 2.5 per cent sequentially. Growth was driven by subscriber additions, although the average revenue per user (Arpu) remained slightly soft. Jio added 8.9 million net subscribers during Q1FY27, taking its subscriber base to 533.3 million, up 7.1 per cent year-on-year. According to Dolat Capital, this marks the eighth consecutive quarter of subscriber-led expansion. Arpu rose 3.3 per cent year-on-year to ₹215.6, though the brokerage described the increase as modest. 

While Jio’s strong 4G and 5G position, healthy subscriber momentum, improving Arpu and calibrated tariff hikes remain positives, Himanshu Shah and Mohit Rajani of Dolat Capital have reduced their FY27 and FY28 operating profit estimates by 3-4 per cent to reflect the Q1FY27 performance. Apart from tariff hikes, the key triggers for the telecom business include higher monetisation of 5G subscribers, lower capital expenditure, robust free cash flow and a public listing. 

The miss in the retail business was on the operating profit front, which declined 2 per cent year-on-year due to investments in digital commerce and a higher proportion of the lower-margin JioMart business. Margins contracted by 75 basis points to 7.4 per cent. Equirus Securities said retail remained a key weak spot, with margins falling to a 15-quarter low amid investments to scale up digital commerce.