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Growth momentum continues; Outlook intact

Reliance Industries Ltd. is one of the largest private sector companies in India with businesses in telecommunication, petrochemicals, synthetic fibers, fiber intermediates, textiles, retail and energy.

* Sustained high utilization rates across sites and improvement in downstream products led to growth in consolidated revenue by 24.9% QoQ (+11.0% YoY).

* Whilst, Grocery and Fashion & Lifestyle registered all-time high revenues, sharp growth in Consumer Electronics was bolstered by higher Jio devices sales.

* EBITDA margin contracted by 230bps QoQ to 15.1% with a significant decline in other income.

* Solid Balance Sheet, improving market share, diversified portfolio, strong FCFs and accelerated vaccination drive should support company’s growth prospects further despite unprecedented challenges. Therefore, we reiterate our BUY rating on the stock with a revised target price of Rs. 2,298 based on SOTP valuation.

Topline shines on higher volumes

Q4FY21 revenue rose 24.9% QoQ (+11.0% YoY) to Rs. 154,896cr, owing to higher volumes in transportation fuels and better price realization across product portfolios (+20.6% QoQ, +4.5% YoY). Higher realization was led by strong Brent crude price (+37.7% QoQ), sharp demand revival, weather-related supply disruption and continued supply cuts by OPEC+(~8 mb/d).

Also, robust performance by retail segment (+25.0% QoQ, +20.5% YoY) across all formats aided revenue uptick. Digital services was down 4.4% QoQ (+18.1% YoY) while strong customer traction, lower churn, increased consumption uplifted revenue annually. Oil and gas grew 96.8% QoQ on ramp-up of gas production (R-cluster), Financials services de-grew 4.4% QoQ

Decent performance despite contraction in margins

EBITDA came in at Rs. 23,351cr (+8.3% QoQ, +6.0% YoY) although EBITDA margin dropped sequentially by 230bps QoQ (-70bps YoY) to 15.1% with lower other income (-27.3% QoQ,-16.6% YoY). PAT remained at Rs. 13,227cr (+0.9% QoQ) with increased exceptional item of Rs.797cr due to gain on sale of US Shale assets while it significantly improved +108.4% on YoY basis on lower interest costs and taxes.

Key concall highlights

* Q4FY21 blended ARPU was Rs 138.2, sequentially impacted by transition from Interconnect Usage Charges (IUC) to Bill and Keep regime, from 1st Jan, 2021.

* Company ranked #1 telecom operator in India with 426.2mn customer base.

* Consumer electronics - Exclusive product deals led to improved sales, Digital (+3x YoY) + New Commerce (Geographic coverage > 2,265 cities) put up 10% of sales.

* Persisting upward trend in Fashion & Lifestyle business - Store count at 12,711 with 826 new stores in Q4FY21.

Valuation

Tariff hike is imminent to support ongoing high investment and 5G rollout by Airtel / Jio, however increasing customer base, flourishing ARPU and consumers switching to digital rapidly should further aid growth momentum for RIL. The accelerated COVID vaccination drive, vehicle scrappage policy, new expenditure in refining infra of pipes/ containers and ease of lockdown in foreign markets should support fuel margins in long-term. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 2,298 based on SOTP valuation.

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