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Our view

RIL reported an in-line 3QFY23, with operating profit at Rs 352.5bn (+19% YoY; +13% QoQ). Strong refinery margins aided by firm middle distillate cracks, improvement in Telecom ARPU & subscriber base and continued momentum in Retail segment sales aided by festive season, were key driver of profitability during the quarter. However, weakness in global petrochemical demand weighed on polymer and polyester cracks. In the Retail segment as well, consumer sentiment turned cautious post festive season. In our view going ahead, global recessionary concerns, amidst continued capacity addition (refining & petrochemical) could possibly be a key overhang on petroleum spreads, impacting RIL’s operating cashflow in coming quarters, whereas capex requirement remain high. Caveat to above is a strong revival in Chinese economy and petroleum demand, aiding cracks. In the longer run however investment in petrochemical and renewable capacities along with 5G roll out are potential revenue drivers. We therefore find RIL fairly valued and maintain ADD with TP of Rs 2800/sh.

Result Highlights

* Revenue: The consolidated net-revenue stood at Rs 2171.6bn (+17% YoY; -6% QoQ), driven by a) 84%YoY & 14% QoQ higher natural gas realization in KGD6, b) 17%YoY & 4%QoQ higher Retail sales driven by festive season and c) 20%YoY & 3%QoQ higher Digital services revenue on backs of 5.3mn net subscriber addition. O2C revenue however stood 9%QoQ lower on weaker crude & products prices.

* Operating Profits: Consol. Ebitda at Rs 352.5bn (+19% YoY; +13% QoQ), aided by a) stronger natural gas realization b) stronger GRMs aided by middle distillates and c) higher customer engagement and operating leverage in Retail & Digital segments

* Consolidated PAT: stood at Rs 178bn (-13% YoY; +15% QoQ), as higher depreciation and interest cost offset improvement in Ebitda. In addition, the base quarter (3QFY22) was aided by exceptional income of Rs 28.4bn, adjusted for the same, PAT stood largely flat YoY.

* O2C Segment Ebitda: at Rs 139.3bn (+3% YoY; +16% QoQ) as strong middle distillates offset weaker gasoline and chemical cracks; impact of SAED (Rs 18.9bn).

* Oil & Gas Ebitda: stood at Rs 38.8bn (+129% YoY; +22% QoQ), growth aided by higher realization in KG Basin (USD 11.3/mmbtu) and strong CBM price (USD 20.9/mmbtu) along with steady KG basin production at 19mmscmd. The production is expected to look-up post commissioning of MJ by end of Feb’23.

* Digital Services Ebitda: at Rs 129bn (+26% YoY; +5% QoQ) as ARPU improved to 178.2 along with net addition of 5.3mn subscriber taking total to 432.9mn.

* Retail Ebitda: at Rs 47.8bn (+25% YoY; +8% QoQ) on strong growth across consumption basket led by festive season.

* Finance Cost: At Rs 52bn (+36% YoY and +14% QoQ), due to increase in interest rates, along with higher debt balances.

* Net-Debt: The gross debt at the end of 3QFY23 stood higher at Rs 3035.3bn (2Q: Rs 2948.6bn) and cash & equivalents at Rs 1932.8bn (2Q: Rs 2016bn), implying a net-debt position of Rs 1102.5bn (1Q: Rs 932.5bn).

* Capex: Capex for 3QFY23 stood at Rs 375.9bn (9M: Rs 1015.7bn).

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