Buy Reliance Industries for the Target 1,680 by Emkay Global Financial Services Ltd
RIL’s 1QFY27 consol EBITDA/PAT at Rs475/209bn beat our estimates by 6%/19%, up 8%/23% qoq – driven by better than expected O2C and upstream earnings and partly offset by weaker Retail. O2C benefited from elevated fuel cracks and downstream deltas, though gains were partly offset by ME conflictled dislocations, SAED, and shutdowns. Retail revenue grew 12% yoy (ex-FMCG spin-off impact; vs 17% estimate), while EBITDA missed by 10% as margins contracted on continued scale-up of hyperlocal delivery business. However, the mgmt reiterated its target of doubling EBITDA by FY29. Despite slightly lowerthan-expected subscriber adds and ARPU, Jio saw margin expansion, supported by operating leverage. Reported net debt was down 1% qoq at Rs1.23trn, while 1Q capex stood at Rs387bn (up 29% yoy/down 5% qoq). The mgmt is constructive on O2C. We retain FY28E/29E EPS while raising FY27E EPS by 2% on stronger O2C earnings, partly offset by weaker Retail. We raise our capex estimate. We rollover to Jun-28E earnings; retain BUY/TP of Rs1,680.
Results Highlights
i) O2C improved qoq, on higher fuel cracks/petchem deltas, though partially offset by ME conflict-led dislocations and SAED levy. O2C feedstock/sales were 18.1mmt/15.6mmt, down 7%/9% qoq; however, EBITDA/mt rose 22% qoq to $99.
ii) Upstream EBITDA rose 19% qoq to Rs49.7bn (25% beat), mainly backed by higher CBM volume/realization, higher crude realization, and lower opex. KG Basin’s gas volume fell 2% qoq to 24.8mmscmd.
iii) Jio added 8.9mn net subscribers, while ARPU was Rs215.6 (up 1% qoq). JPL’s consol EBITDA rose 6% qoq to Rs212.6bn, as operating leverage played out with EBITDAM expanding by 40bps qoq. Net access charges fell 8% qoq to Rs6.8bn, while network opex rose 2% to Rs88.0bn.
iv) Retail EBITDA at Rs63.1bn fell 1% yoy (10% miss), as EBITDA margin fell 80bps, due to increasing contribution of hyper-local delivery business and associated costs. Net store addition was muted at 9 stores, with retail area stable qoq at 78.4msf. RIL’s other income rose 6% yoy to Rs65.5bn (36% beat), while finance costs rose 18% yoy, on higher liability balances and 5G asset capitalization.
Management KTAs
RIL targets doubling Retail EBITDA in 3Y, focusing on scaling online business in FY27 and driving profitability in FY28-29. RCPL’s gross revenue grew 2.1x yoy, while seeing EBITDA breakeven. Refining margin is expected to remain constructive in the near term, on lower global refinery operating rates and tight product balances; but incremental Asian cracker capacity adds may weigh on petchem deltas. In Jio, 4-5% ARPU growth may continue on mix change even without tariff hike. RIL commissioned solar cell production.
Valuation
Basis SOTP method, we value RIL’s core segments on Jun-28E EV/EBITDA and New Energy/Other segments on EV-IC/EV-EBITDA. We lower our target multiple for O2C and other segments. Key risks: Adverse commodity/currency movement, competition, delay in monetization of ventures, and policy risks.
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