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RIL reported largely in-line earnings (consol. EBITDA: Rs407bn; PAT: Rs173bn) in Q3FY24. O2C and Jio EBITDA, both saw a slight miss on our estimate which was albeit offset by better Upstream (due to lower opex) and in-line Retail. Capex run-rate reduced to Rs301bn in Q3 vs. ~Rs390bn each in Q2 & Q1FY24. Net debt was up 1% QoQ to Rs1.19trn, due to pay-down of creditors for capex. Company stated that its new energy giga complex would be commissioned in phases, starting H2CY24. We broadly maintain FY24-26E earnings, but raise our SOTP-based TP by 8% to Rs2,950/share, on the back of higher new energy value (1.5x EV/IC) as development progresses (giga factory commission, green H? PLI win for 90ktpa, etc), higher Jio EV/EBITDA target (11x vs 10.5x earlier on strong subs growth, peer rerating), and rollover to Dec-24E; maintain ADD.

Key Result Highlights:

O2C EBITDA fell 14% QoQ to Rs140.6bn due to maintenance in multiple units combined with lower cracks & deltas; feedstock optimization and cheaper ethane supported, though. O2C feedstock/sales stood at 18.7mt/16.4mmt, down 7%/4% QoQ, while EBITDA/mt declined 8% to USD90. Upstream EBITDA rose 22% QoQ to Rs58bn as opex normalized QoQ, while KG Basin gas volumes were up 5% QoQ at 29.6mmscmd. Jio clocked strong net subs addition of 11.2mn (vs our est of 10.5mn), while ARPU was slightly lower at Rs181.7 (flat QoQ). Jio’s EBITDA was up 1.4% QoQ to Rs142.6bn. Network opex was up 1.3% QoQ to Rs77.1bn. Retail EBITDA rose 8% QoQ to Rs62.7bn as net store additions stood at 124, while retail area rose 2% QoQ to 72.9mn sqft. Q3 revenue growth of 23% YoY was led by Grocery/Fashion-Lifestyle, which saw strong growth of 41%/28% YoY, while Consumer Electronics grew 19%.

Management KTAs:

O2C business outlook remains positive, on healthy diesel-kero cracks and steady demand, though volatility would be present due to OPEC+ cuts & geopolitical issues. Chemical margins are expected to be muted in the near term due to over-supply. Current KG Basin gas output is ~30mmscmd with ~21kbpd oil/condensate as well, while CBM ramp-up is under way through the 40 multi-lateral well campaign. Jio has 90mn 5G users, with 5G roll-out completed before schedule in Q3. Jio’s capex intensity is expected to moderate, while the company undertakes monetization of 5G users. Retail momentum is expected to sustain, as Digital scales up (~19% of Q3 sales), with focus on expanding distribution and the product portfolio. FCF outlook should improve, along with a robust balance sheet and moderating capex.

Valuation:

We value RIL on an SOTP basis, using the Dec-25E EV/EBITDA methodology for core segments and the EV-IC/EV-sales methodology for the New Energy/Other segments. We raise our EV/EBITDA multiple by 0.5x to 11x for Jio and our EV/IC for New Energy to 1.5x from 1x earlier. Key risks: Adverse commodity/currency, B2C competition, delay in monetization of ventures, and policy & new business related risks.

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