More segments cover Jio on RIL’s Q3 show

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NEW DELHI : Shares of Reliance Industries Ltd (RIL) are up 18.3% over the past six months, outpacing the Nifty50 index’s 12.7% gain. An analyst from a multinational brokerage firm said, on condition of anonymity, that RIL stock “has seen a catch-up rally, and retail should show a strong recovery.”

Indeed, RIL’s December quarter (Q3FY22) results were marked by a sharp rebound in retail activity. Store operations have normalized with footfall at 95% of pre-covid levels. Holiday sales and record store sales boosted segment revenues. The grocery, consumer electronics, apparel and footwear categories saw strong demand. “A weak base coupled with increased mobility helped as Reliance Retail’s base revenue more than doubled during the third quarter, with a two-year CAGR (compound annual growth rate) of approximately 19%,” they said. writes analysts at Jefferies India Pvt. Ltd in a January 22 report. .

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RIL’s consolidated EBITDA in the third quarter was 6% higher than Jefferies’ estimate, helped by a strong 11% gain in retail. Ebitda represents earnings before interest, taxes, depreciation and amortization and excludes other income. Note that RIL’s EBITDA in Q3 increased 14% sequentially to reach 29,706 crores. The figure surmounted by the Estimate of 28,380 crores in a Bloomberg poll of analysts.

Meanwhile, the decline in Reliance Jio subscriber additions is a sore spot. In the third quarter, due to SIM card consolidation, Jio’s subscriber net loss was 8.5 million compared to 11.1 million in the second quarter. As such, the continued loss of subscribers is disheartening.

Jefferies said, “Jio’s disappointing subscriber numbers may indicate lower than expected subscriber additions for Bharti (Airtel) in the third quarter.” On the positive side, Jio’s average revenue per user (Arpu) increased 8% year-over-year on a like-for-like basis for 151.6. “Recent price hikes amid subscriber churn suggest that Jio’s focus is gradually shifting to Arpu-led growth, which bodes well for the overall pricing environment,” Jefferies analysts said. .

RIL’s most revenue-generating business, oil to chemicals (O2C), saw robust growth last quarter, although the segment’s performance was nearly in line with expectations. Within O2C, the refining segment performed well, but petrochemicals margins remained subdued. The refining environment improved with Singapore’s benchmark gross refining margin increasing to $6.1/barrel in Q3 from $3.8/barrel in Q2. The oil and gas exploration and production (E&P) business also performed well, driven by a significant recovery in KG D6 production and higher price realizations.

With better demand, analysts expect refining margins to remain strong in the short to medium term. Even so, the fortunes of RIL stock are closely tied to its consumer, retail and telecommunications businesses. Pinakin Parekh, analyst at JP Morgan India Pvt. Ltd wrote in its report on January 22: “O2C + E&P only represent 30% of our price target and therefore for the share price the main drivers would remain the high multiple activities such as the sale to the retail (valued at 43x FY23 EV/Ebitda), Jio (valued at around 13x FY23 EV/Ebitda and a steep premium to peers) and new energy (stock option value of $20 billion). “EV is enterprise value. JP Morgan’s price target for RIL stock is 2,575 per share. On Friday, RIL closed at 2,477.85 on NSE.

Nitin Tiwari, an analyst at Yes Securities Ltd, said RIL’s huge renewable energy investment plans would transform its energy business vertically and improve earnings prospects over time.

That said, the outperformance of RIL shares over the past six months suggests that investors have factored in an adequate share of optimism. In the short term, intermittent disruptions due to the third wave of covid could weigh on retail trade. Also, Jio subscriber additions should be monitored.

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