Jio listing, retail growth key near-term triggers for Reliance industries

Drag on consolidated performance by retail in Q3 was offset to an extent by O2C, telecom

The December quarter (Q3FY26) operating performance of the country’s largest company by market capitalisation (mcap), Reliance industries (RIL), was broadly in line with Street expectations. 

The drag on consolidated performance of the company by the retail segment in Q3 was offset to an extent by the strong show in oil-to-chemicals (O2C) and telecom.

 

Given that the hit in the retail segment’s operating performance was sharper than expected, some brokerages have marginally cut their estimates. Key triggers were listing of the telecom arm and uptick in the growth of Reliance Retail. 

At the current price, the stock is trading at 25 times its FY27 earnings. 

Reliance Retail Ventures (RRVL), which accounts for about 30 per cent of the company’s consolidated revenues and contributes about 14 per cent to its operating profit, delivered a revenue growth of 9 per cent. 

In addition to the rationalisation of the goods and services (GST) rates, the top line of RRVL was hit by a shift in the festival calendar to an extent into the June quarter. There was also the impact of the demerger of Reliance Consumer Products (RCPL).

 

RCPL is the FMCG arm of RIL’s retail business and has major brands across food, beverages, home, and personal care.

 

While there were 431 new store additions for the retail segment, the net additions in the quarter were 158 after accounting for closures.

 

The total store count at the end of the period stood at 19,979 and new additions led to the retail area witnessing a 1 per cent increase year-on-year (Y-o-Y) to 78.1 million square feet.

 

The company is investing heavily in its quick commerce (qcom) business and JioMart is gaining traction with 1.6 million plus exit orders on a daily basis. The growth in average daily orders was a strong 53 per cent on a sequential basis and 360 per cent over the year-ago quarter. At this rate, it hopes to break into the top two positions in the qcom space.

 

Given the higher focus and scale up of the quick commerce business, weaker product mix and labour code implementation, operating profit growth was limited to 2 per cent Y-o-Y. Margins for the segment declined 55 basis points (bps) to 7.8 per cent.

 

Motilal Oswal Research has cut its FY26-28 operating and net profit by 0-3 per cent, broadly due to weaker growth in RRVL and higher interest costs in RJio.

 

Analysts led by Aditya Bansal have built a growth rate of 10 per cent in consolidated operating profit of RIL over the FY-25-28 period. It has a buy rating with a revised target price of ₹1,750.

 

The strong show in the telecom segment helped offset some of the weaknesses in other segments. Revenues were powered by a 5 per cent Y-o-Y growth in average revenue per user (ARPU) and strong subscriber addition of 8.9 million. While total subscribers are now at 515 million, its 5G users are at over 253 million, up 49 per cent Y-o-Y. While it has around two-thirds share of 5G subscribers in India, it is also driving industry growth in the fixed broadband space, accounting for 70 per cent of incremental subscriber additions in this space.

 

Systematix Research expects Jio’s IPO to be a key trigger for RIL in early FY27. Post the Q3 results, it has kept the earnings estimates unchanged and has a buy rating on the stock with a target price of ₹1,700.

 

In the O2C business, the operating profit for the segment saw a 15 per cent growth Y-o-Y on the back of a sharp increase in transportation fuel cracks and higher sulphur realisation. This was partially offset by weakness in downstream chemical margins and higher feedstock freight rates.

 

Favourable ethane cracking economics and domestic market placements continued to support profitability. In the upstream business, revenues fell by 8.4 per cent Y-o-Y, on account of lower volumes and price realisation for KGD6 gas and condensate.

 

Operating profit was down 13 per cent while margins declined 410 bps due to higher operating costs amid periodic maintenance activity.

 

Nuvama Research is bullish on the new energy vertical. It expects the new energy rollout to not only add 50 per cent plus contribution to net profit but also rerate valuation, including O2C, given its net zero-carbon target by 2035.

 

Analysts, led by Jal Irani, have a buy rating on RIL with a target price of ₹1,808.