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Consumer business compensates for the weakness in O2C

* Reliance Industries (RIL)’s consolidated revenue declined 5% YoY/3% QoQ to INR2,075.6b (in line). The sharp decline in O2C segment (with 31% drop in crude oil prices) was offset by continued growth in consumer business and increase in volumes from O2C and Oil & Gas businesses.

* RJio’s revenue/EBITDA grew 3% QoQ each (in line), led by 2% subscriber additions and marginal increase in ARPU. Despite the aggressive 5G-led capex, network opex has remained under control during the quarter.

* Reliance Retail posted healthy revenue/EBITDA growth of 21%/34% YoY (in line) led by all-round improvement, rising footfalls and growing digital business.

* O2C’s EBITDA came in 11% below our estimate at INR164b (-22% YoY) in 1QFY24. EBITDA/mt stood at ~USD87.1 (-38% YoY, -14% QoQ). The outlook continues to remain murky as capacity additions from China are likely to keep product spreads under pressure.

* Net debt remained flattish sequentially at INR1,266.2b (vs. INR1,257b as of Mar’23). This has been restated for the transfer of cash and liquid investments to Jio Financial Services Ltd. Capex moderated a bit sequentially to INR396.5b (vs. INR444.1b in 4QFY23), which was largely funded internally.

* Using SOTP, we value the Refining and Petrochemical segments at 7.5x EV/EBITDA, arriving at a valuation of INR904/share for Standalone business. We ascribe an equity valuation of INR750/share to RJio and INR1,500/share to Reliance Retail, factoring in the recent stake sale. We have further included an equity valuation of INR16/share pertaining to New energy on book value. Our TP is adjusted for Jio Financial Services (JFS) valuation. We reiterate our BUY rating with a TP of INR2,935.

RJio – growth softens in line with expectation

* RJio’s revenue/EBITDA grew 3% QoQ each (in line) in 1QFY24, led by 2% subscriber additions and 1% increase in ARPU.

* The company is aggressively rolling out 5G, it has deployed over 150k sites with ~690k 5G cells covering more than 90% census towns. RIL is on track to complete pan-India rollout before Dec’23. We have kept our FY24E/25E capex intact at INR380b/INR310b.

* We expect a revenue/EBITDA CAGR of 11%/14% over FY23-25 factoring in 8%/3% CAGR for subs/ARPU over the same period. Long-term outlook remains intact with market share gains from VIL, tariff hikes and new growth opportunities such as Jiofibre, Airfibre, and JioBharat as well as other digital avenues triggered by the 5G rollout.

Reliance Retail – Steady growth as expected

* Reliance Retail’s revenue/EBITDA jumped 21%/34% YoY to INR622b/INR51b (in line) with 90bp YoY margin improvement. Core revenue/EBITDA (excluding Connectivity) grew 25%/28% YoY as per our working.

* However, overall growth lagged the strong footprint additions of 55.2% YoY to 70.6m sq. ft. It added 555 gross stores in 1QFY24 reaching 18,446 stores, at +2.3% QoQ.

* Grocery business clocked a strong 59% YoY growth, while Consumer Electronics (excl. devices)/Fashion & Lifestyle grew at 19%/15% YoY. Digital & New Commerce posted a strong growth YoY, raising its contribution to 18% from 17%.

* Reliance Retail’s revenue and EBITDA are likely to report 25% and 34% CAGR, respectively, over FY23-25 (estimates retained), fueled by accelerated store additions across segments, recovery in store productivity and aggressive foray into digital & new commerce.

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