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RIL’s consolidated 2QFY23 EBITDA was 3% below JMFe at INR 312bn (up 20% YoY, but down 18% QoQ due to normalisation of GRMs) on account of lower O2C segment EBITDA; Digital and Retail segment EBITDA was stronger than expected. O2C EBITDA was 5% below JMFe at INR 120bn due to implied lower GRM at around USD 9.5/bbl (vs. JMFe of USD 10/bbl). However, Digital EBITDA was 2% ahead of JMFe at INR 122.9bn (up 3.4% QoQ) on higher net subs addition (at 7.7mn) and lower SUC; but ARPU was slightly lower at INR 177. Retail business EBITDA was up 7% above JMFe at INR 44bn (up 15% QoQ) driven by aggressive store expansion and rise in discretionary spends. We reiterate BUY (unchanged TP of INR 2,950) given RIL’s industry leading capabilities across businesses and expectation of robust 14-15% EPS CAGR over the next 3-5 years.

O2C business EBITDA at INR 120bn, 5% below JMFe: O2C EBITDA at INR 120bn (down 40% QoQ and down 6% YoY) was 5% below JMFe of INR 126bn — this could be mostly due to implied lower GRM at around USD 9.5/bbl (vs. JMFe of USD 10/bbl and implied GRM of around USD 18/bbl in 1QFY23). The company highlighted adverse impact on EBITDA of INR 40.4bn (implying USD 3.2/bbl of hit to GRM) in 2QFY23 due to special additional excise duty (SAED) on export of transportation fuels w.e.f. 1 st Jul’22. It is difficult to specifically comment on the margin trend for refining and petchem segments given limited details; however, the management said polymer margin was weak while polyester margin was stable. E&P segment EBITDA was higher at INR 31.7bn in 2QFY23 (vs. JMFe of INR 27.6bn and INR 27.4bn in 1QFY23) though production was stable at ~19mmscmd; the company expects commissioning of the MJ Fields by year-end.

Digital EBITDA up 3.4% QoQ; 2% ahead of JMFe on higher subscriber addition and lower SUC: Digital EBITDA was 2% ahead of JMFe at INR 122.9bn in 2QFY23 (up 5.0% QoQ and up 28.6% YoY) on higher subscriber (subs) addition and lower-than-expected SUC (of 2.3% in 2QFY23 vs. 3.7% in 1QFY23, given the recent 5G spectrum auction had NIL SUC). Net subs addition was higher at 7.7mn in 2QFY23 vs. JMFe of 4.4mn net addition (vs. net addition of 9.7mn in 1QFY23). However, ARPU was slightly lower at INR 177.2 in 2QFY23 vs. JMFe of INR 180 (and INR 175.7 in 1QFY23). Data usage per subs rose to 22.2 GB/month in 2QFY23 (vs. 20.8GB/month in 1QFY23). Network cost was in line at INR 71.8bn in 2QFY23 or 31.7% of revenue (vs. 1QFY23 network cost of INR 68.4bn). However, PAT was 8% below JMFe at INR 45.2bn (up 4.2% QoQ and up 28.1% YoY) due to higher depreciation and interest cost.

Retail business’ strong growth driven by aggressive store expansion and rise in discretionary spends: Retail gross revenue was up 10.9% QoQ and up 43% YoY at INR 649bn; EBITDA at INR 44bn (up 14.7% QoQ and up 51% YoY) was up 7% above JMFe. EBITDA margin rose by 5bps QoQ to 6.6% in 2QFY23 (vs.6.6% in 1QFY23). Aggressive store expansions continue to drive growth, with 795 stores with an area of 9.2mn sq. ft. being added in 2QFY23, taking the number of total stores to 16,617 and total area to 54.5mn sq. ft. at end-2QFY23. Digital and New Commerce businesses’ strong growthcontinues with daily orders growing 53% YoY and merchant base scaling up 2x YoY.

Expect robust 14-15% EPS CAGR over the next 3-5 years – reiterate BUY: We maintain our estimates and TP of INR 2,950. We reiterate BUY given RIL’s industry leading capabilities across businesses and expectation of robust 14-15% EPS CAGR over the next 3-5 years — A Giant Digital Leap. At CMP, the stock is trading at FY24E P/E of 23.5x (3 yr avg: 23.0x) and EV/EBITDA of 12.0x (3 yr avg: 12.7x).

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