Listing of consumer verticals, new energy scale-up key triggers for RIL

Given the recovery in retail, the recent recovery in petchem margins, and the scale-up in the new energy business, most brokerages have a buy rating on RIL

Barring the upstream business vertical, most segments of the country’s largest listed company by market capitalisation, Reliance Industries (RIL), performed in line with or beat estimates in the January-March quarter of 2024-25 (FY25). The key takeaway was the strong performance of the retail vertical, which, coupled with the digital business, powered the 3.1 per cent year-on-year (Y-o-Y) growth in operating profit at the consolidated level.

 

The consumer businesses were thus able to offset the 10 per cent operating profit decline in the oil-to-chemical (O2C) segment. Given the recovery in retail, the recent recovery in petrochemical (petchem) margins, and the scale-up in the new energy business, most brokerages have a ‘buy’ rating on RIL. The stock was the top gainer among Sensex stocks on Monday, rising 5.3 per cent at close. 

 

In addition to the new energy business, Systematix Research believes that further rerating is imminent. Triggers include domestic growth in the petchem business, tariff hikes and broadband expansion in telecommunications (telecom), growth across retail’s physical and online stores, and the listing of the telecom and retail verticals.

 

While multiple triggers are going ahead, it was the recovery in the retail vertical that caught the Street’s attention. After a slow start in the first half of the year on account of elections and the monsoon, there was broad-based growth across key segments in the second half, led by the festival season, weddings, Maha Kumbh, and an early summer. Moreover, the net addition of 238 stores, taking the total store count to 19,340, robust footfall growth, and strong traction in online sales also aided the retail top line. 

 

  The gains were also reflected at the operating profit level for the vertical, as the metric saw a 14.3 per cent jump over the year-ago quarter. In addition to top-line growth, what aided profit, according to the company, was three quarters of sizeable streamlining and rationalisation. Margins for the retail segment expanded by 25 basis points Y-o-Y to 5.8 per cent and were much higher than Street estimates.

 

Given the strong show, analysts at Motilal Oswal Research, led by Aditya Bansal, have raised their 2025-26 through 2026-27 (FY27) revenue and operating profit estimates for the retail segment by 2 per cent each and have built in annual growth of 14-15 per cent in revenue and operating profit over FY25-27. 

 

The telecom business saw a 2 per cent growth in revenue on a sequential basis, with gains from the tariff hike and normalisation of the subscriber base offset by two fewer days in the quarter. Net subscriber additions were higher at 6.1 million, with growth both in the 5G user base and ramp-up in the fixed wireless access user base.

 

While average revenue per user was up 14 per cent Y-o-Y, it rose marginally by 1 per cent quarter-on-quarter to ₹206.2, which was lower than Street estimates. While operating profit was 2 per cent higher, it missed estimates due to muted revenues and higher costs. 

 

In the O2C business, operating profit was down 10 per cent over the year-ago quarter, given weak transportation fuel cracks. On a sequential basis, there was an increase of 5 per cent on the back of modestly higher realised margins, higher marketing contributions driven by increased domestic placement, and feedstock optimisation, says analyst Hemang Khanna of Nomura Research. The upstream operating profit was a disappointment, as it dipped 8 per cent sequentially due to lower KG D6 production.

 

HDFC Securities has maintained its ‘add’ rating on RIL with a price target of ₹1,655 per share, on the back of operating profit growth in the digital business, driven by improvement in average revenue per user, subscriber additions, new revenue streams, and a recovery in O2C margins.