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Reliance Industries gains 1% post March quarter results

The company reported its highest-ever net profit during the quarter, due to a decline in raw material costs and big savings on tax expenses

Reliance Industries, Reliance, RIL

SI Reporter Mumbai

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Shares of Reliance Industries (RIL) gained 1 per cent to Rs 2,382.90 on the BSE in Monday's intra-day trade after the Mukesh Ambani-owned company reported higher-than-expected consolidated net profit at Rs 19,299 crore during the January-March 2023 quarter (Q4FY23), up 19 per cent year-on-year (YoY) despite muted growth in revenues during the quarter.

The company reported its highest-ever net profit during the quarter, due to a decline in raw material costs and big savings on tax expenses. It had posted consolidate net profit of Rs 16,203 crore in the fourth quarter of FY22 (Q4FY22).

Revenue of RIL rose 2.7 per cent YoY to Rs 2.13 trillion in the March quarter. The company's raw material expenses were down 7.9 per cent YoY during the fourth quarter.

The company attributed this to a decrease in revenue from the O2C (oil to chemicals) business on account of a sharp fall in crude oil prices and lower price realisations on downstream products such as transportation fuels and petrochemical products.

The company’s operating or earnings before interest, depreciation, taxes and amortization (Ebitda) margin during the quarter was up nearly 300 basis points YoY to 18.9 per cent of revenues in Q4FY23, the highest in the last five quarters.

"Overall, earnings were 7 per cent above consensus estimates adjusting for the lower tax rate, which normalised due to a higher tax rate in the earlier part of FY23," analysts at Morgan Stanley said.

O2C saw good improvement in demand, especially on polyester, and retail saw increased footfall with the company guiding for strength in categories of grocery (up 66 per cent YoY) and fashion. E-commerce sustained at 18 per cent of total sales. Upstream gas profitability remained stable and saw support from elevated domestic gas prices, the brokerage firm said in a update.

"RIL guided for startup of new production from the current quarter, which should help raise earnings. Telecom showed steady operational performance and with 6.4 million net subscriber additions with Ebitda growth largely coming from home broadband penetration and tariff increases," it added.

"We believe RIL's growth to be supported by strong traction in its consumer businesses while the legacy business to remain a cash cow, supporting investment in growth segments. Strong traction in Retail, 5G rollout in Digital, and bettering performance in O2C segment remain key drivers for RIL. We have rolled over our valuations to FY25E and upgrade RIL to Buy from Add with SOTP based target price of Rs 3,025 (earlier Rs 2,750)," analysts at Centrum Broking said.

Segment-wise, the consumer business has been a mixed bag with retail seeing moderate growth but likely to witness gains from Future group footprint. However, growth in telecom will continue to soften with higher base and lower tariff hike probability along with intensifying 5G spends. While upstream production is expected to increase to 30mmscmd in FY24 from 19mmscmd, concerns remain on refining and petrochem margins going forward, analysts at Motilal Oswal Financial Services (MOFSL) said.

The brokerage firm values Reliance Retail's core business at 35x EV/EBITDA and has assigned 5x to Connectivity on FY25E Ebitda to arrive at its valuation of Rs 1,354 – after excluding the recent 10 per cent stake sale. "Our premium valuation multiples capture the opportunity for rapid expansion in the Retail business and the aggressive rollout of digital ventures, including the JioMart platform," MOFSL said in a result update.

"Using SOTP, we value the Refining and Petrochemical segments at 7.5x EV/EBITDA, arriving at a valuation of Rs 879/share for standalone business. We ascribe an equity valuation of Rs 800/share to RJio and Rs 1,354/share to Reliance Retail, factoring in the recent stake sale. We reiterate our BUY rating with a target price of Rs 2,800," the brokerage firm said.

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First Published: Apr 24 2023 | 9:37 AM IST

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