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Result Highlights‐ Stronger Oil & Gas offsets weaker Retail

* Revenue: The consolidated net‐revenue stood at Rs 1399 (+59% YoY; ‐6% QoQ), driven by better realizations in O2C segment, higher natural gas production, continued traction in telecom subscriber addition; offset partially by Covid induced drop in foot‐falls and muted store operations in Retail segment  

* Operating Profits: Consolidated Ebitda at Rs 233.6bn (+38% YoY), stood sequentially flat and in‐line with estimates, as strong polymer & polyester deltas, along with improvement in transport fuel cracks, aided O2C earnings to offset the sequential weakness in Retail segments operating profits.  

* Finance Cost: Finance cost continued to moderate and for quarter stood lower at Rs 34bn (‐50% YoY; ‐16% QoQ) on paring down of borrowing/liabilities

* Net‐Debt: The gross debt for the quarter stood at Rs 2538.5bn (4QFY21: Rs 2518.1bn) and cash & equivalents at Rs 2577bn (4Q: Rs 2540bn), implying a net‐ cash position of Rs 38.6bn (4Q: Rs 221.bn)

* Capex: Capex for 1QFY22 stood at Rs 166.8bn; in addition RJIL invested Rs 293bn in spectrum acquisition.

* O2C Segment: Revenue and EBITDA stood stronger at Rs 1032bn (+75% YoY; +2% QoQ) and Rs 122bn (+50% YoY; +7% QoQ), as impact of Covid‐2nd wave on demand was less severe than the first wave. While the polymer demand was higher by 28% YoY, Polyester demand stood 203% YoY higher. Despite sequential moderation the Polymer and Polyester deltas stood higher than or at par with 5 years average. The refining margins were also aided by stronger MS, HSD and ATF cracks, along with reduced operating cost on higher usage of domestic gas.  

* Oil & Gas Segment: The segment Revenue and EBITDA improved to Rs 12.8bn (+153% YoY; +51% QoQ) and Rs 7.97bn (+66% QoQ), on earlier than scheduled ramp‐up in production from KG D6. With satellite coming on‐stream in Apr’21, the production from KG basin stood at 16.6mmscmd. The same shall hit the full potential of 30mmscmd, with commissioning of MJ field in 3QFy23. The gas realization at USD 3.6/mmbtu, though modest, is expected to improve by 50‐60% Oct’21 onwards.     

* Digital Services Segment: The Revenue & EBITDA for JPL stood at Rs 189.5bn (+10% YoY; +4% QoQ) & Rs 88.9bn (+21% YoY; +4% QoQ), the same for RJIL (subsidiary) stood at Rs 170bn (+7%YoY; +4% QoQ) & Rs 86bn (+19% YoY; +4% QoQ). RJIL clocked in an ARPU of Rs 138.4 (4Q: Rs 138), flat QoQ, but lower YoY due to introduction of Bill & Keep regime from Jan’21 . RJIL’s subscriber base climbed to 440mn, with net addition of 15mn subscribers. The FTTH subscriber stands at 3mn, with additional 12mn potential connection. During the quarter, RJIL offered a) Free voice calls (300min/month) and b) BUY one get one re‐charge for JIO phone users to help subscribers tide over Covid crisis.   

* Retail Segment: The Revenue & EBITDA at Rs 385.6bn (+22%YoY; ‐16% QoQ) & Rs 19.5bn (+80% YoY; ‐46% QoQ), stood sequentially weaker as Covid impacted store operation and footfalls. Percentage of operational stores declined to 61% (4Q: 94%), along with lower footfalls at 46% (4Q: 88%) and reduced operating hours.  Digital and new commerce contribution to sales, however improved to 20% (from~10% in 4Q) as JIO Mart scaled up to 218 cities and orders up by 25%.

View & Valuation:

We maintain our BUY recommendation on RIL, with a revised TP of Rs 2440/sh (from Rs 2325/sh) as we roll estimates forward and introduce FY24e. At CMP the stock is trading at 18x FY24e, as against 21x implied by our SOTP based TP.

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