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About the stock: Reliance Industries (RIL) is one of India’s biggest conglomerates with a presence in oil refining & marketing and petrochemicals, oil & gas exploration, retail, digital services and media, etc. making it a well-diversified business entity.

* At the EBITDA level in FY21, O2C and oil & gas contributed 43% while retail, digital and others contributed 11%, 38% and 8%, respectively

Q2FY22 Results: RIL’s results were broadly in line with our estimates.

* Revenue was up 49.8% YoY to | 174104 crore as all segments reported revenue growth. It grew 20.6% QoQ led by retail and O2C segment

* EBITDA was | 26020 crore, up 37.3% YoY, 11.3% QoQ. EBITDA growth YoY was driven by retail (44.1%) and O2C (43.9%) on account of favourable product mix & higher other income in retail coupled with better downstream demand & margins in O2C

* PAT was at | 13680 crore, up 43% YoY

What should investors do? Long term prospects and dominant standing of RIL in each of its product & service portfolio provides comfort for long term value creation. RIL’s consumer business will be the growth driver, going ahead. The company has a strong balance sheet while its traditional business is expected to continue to generate steady cash flows.

* We maintain our HOLD rating on the stock

Target Price and Valuation: We value RIL at | 2900 on an SoTP basis

Key triggers for future price performance:

* Increment value accretion from the ‘digital ecosystem’ that will be captured at the Jio Platforms (JPL) level

* Steady FCF generation in the retail segment would enable the company to maintain debt at lower levels and improve its ability to invest in future inorganic opportunities

* Stake sale in O2C segment to strategic global player will unlock value and enable RIL to invest in new energy verticals

Alternate Stock Idea: Apart from RIL, in our oil & gas coverage we also like Gail.

* Gail is India’s leading gas transmission company, which is a beneficiary of increasing gas consumption. Stable volume growth along with higher profitability from gas trading, petchem and LPG segment due to higher oil prices will add value

* BUY with target price of | 1|75

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