JP Morgan said RIL’s operating profit was stable and the stock now offers many potential catalysts. RIL reported a consolidated net profit of Rs 18,258 crore for the June quarter, down 5.9% year-on-year, with weak performance in the petroleum to chemicals segment partially offsetting the strong growth of its consumer businesses.
Analysts continued to be bullish on Reliance Industries Limited (RIL) even as the oil and gas telecommunications group reported lower revenue and earnings growth in the June quarter, with some even increasing price targets.
The company led by Mukesh Ambani reported a consolidated net profit of Rs 18,258 crore for the first quarter of the current financial year, down 5.9% year-on-year. The weak performance of the oil-to-chemicals (O2C) segment partially offset the strong growth of direct-consumer operations. The increase in finance costs and depreciation also affects the net result. Revenue fell to Rs 2.31 lakh from Rs 2,42 lakh a year ago, as sales from the oil-chemical segment fell due to weak crude oil prices.
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Analysts said the numbers were generally in line with their expectations. Jefferies said earnings before interest, taxes, depreciation and amortization (EBITDA) were in line with estimates. The broker added that while retail growth has been disappointing, margins have improved.
According to the broker, Jio’s delay in interest rate hikes has led it to cut its FY2024/25 EBITDA estimate by 6-4%. “Risk-reward is balanced after the recent rally,” he said, adding that he is rated “buy” with a target of Rs 2,935. Jio Platform profits stood at Rs 5,098 crore, up 12.5% y/y, with average revenue per user growing 2.8% YoY (YoY) to Rs 180.5 per month.
The Jio Platform hosts RIL’s telecommunications and digital businesses.
Reliance Retail reported 18.8% year-on-year profit growth to Rs 2,448 crore, driven by growth in groceries, consumer electronics (excluding appliances) and fashion and lifestyle.
`Some potential catalysts`
Indicating RIL’s operating profit was unchanged, JP Morgan said the stock offers many potential catalysts over the next 18 months. It increased its EBITDA estimate for Fiscal Year 2024-25 from 1.5 to 4.1%, but reduced EPS from 5.4 to 2.9% for the period due to higher applicable tax rates. The brokerage has given the stock an “overweight” rating and raised its price target to Rs 3,040.
Revenue from the O2C business, RIL’s largest division, reached Rs 1.33 trillion in the first quarter of fiscal 2024, down 17.7% year-on-year due to a sharp drop in crude oil prices and lower prices of downstream products.
Macquarie, rated “underperformer” with a target of Rs 2,100 per share, said the company’s earnings were depressed by lower margins in its cyclical O2C business, which is a drag. retail therapy
Motilal Oswal said the mixed-consumer sector, where retail growth is moderate, is likely to benefit from the Futures team’s footprint.
He added that telecom growth will continue to slow with a higher base and the possibility of short-term price increases as well as lower spending ramping up on 5G.
“Using SOTP (total parts), we value the refining and petrochemicals segment at 7.5x EV/EBITDA for FY 2025 to arrive at a valuation of Rs 904/share for an independent business. We value equity at Rs 750 per share for RJio and Rs 1,500 per share for Reliance Retail. Similarly, New Energy’s valuation has reached its BV, implying a price of Rs 16 per share,” Motilal Oswal analysts wrote in a report.
The broker has reiterated its call to “buy” and raised its target to Rs 2,935.
As of 9:20 a.m., shares of Reliance Industries were trading at Rs 2,477 crore on BSE, down 0.25% from the previous close.
