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Consumer business outperforms driven by retail, O2C fortifies on recovering margins while upstream business remains steady

Reliance Industries (RIL) delivered an optimistic Q3FY25, with consolidated revenue at Rs2,400bn (+6.6% YoY, +3.5% QoQ). EBITDA/PAT stood at Rs438/219bn (+7.7/11.7% YoY, +12.1/13.5% QoQ), on higher operating income across segments. The O2C segment remained resilient with improved throughput volumes and higher domestic demand, despite weaker global fuel cracks (GRM of ~USD10.8/bbl). Upstream performance was stable, with KGD6 maintaining gas production at ~28mmscmd. Retail sales rose to Rs903.5bn (+8.8% YoY), driven by festive demand and strong growth in digital commerce. Digital services posted a 16.6% YoY EBITDA growth, aided by a tariff hike that pushed Jio’s ARPU to Rs203.3, alongside net subscriber additions of 3.3mn to 482.1mn. Net debt declined marginally to Rs1,154.7bn, despite elevated capex of Rs322.6bn. RIL’s capex over FY25-26e is expected to remain high due to investments in 5G, retail expansion, and new energy projects. Maintain BUY with a TP of Rs 1,500/shr.

Stock performance

Result Highlights

Performance: The consolidated revenue at Rs 2,400bn was up 6.6% YoY & 3.6% QoQ. EBITDA/PAT at Rs 437.9/219.3bn was up 7.7/11.7% YoY and 12.1%/13.5% QoQ. The O2C performance fortified on recovery in refinery margins, healthy product cracks, and improved polymer delta, assumed GRM of ~USD 10.8/bbl.

* The O2C performance-maintained resilience in Q3FY25. Global oil demand increased in the quarter by 1.5 mb/d YoY. Transportation fuel cracks remained steady but were down 15-38% YoY. The reported EBITDA at Rs 144bn was up 2.4% YoY and 16% QoQ. The YoY growth is a result of strong domestic demand driven by retail despite higher inventories in China, ethane vs naphtha cracking advantage and improved polymer deltas (1-9%) despite the annual decline in fuel cracks. Sequentially O2C witnessed sharp recovery on improved middle distillate cracks and polymer deltas supported by declined crude and feedstock prices coupled with lower Chinese exports.

* The domestic upstream segment remained firm witnessing a decline in production for KGD6 and marginal improvement in CBM partially supported by higher gas prices. While KGD6 continues to contribute >30% of India’s gas production, it marginally declined to 28mmscmd and ~21,000bbls/day of oil.

* The Retail sales were exceptionally strong at Rs 903.5bn on festive led demand, focus remained on Digital commerce and Consumer business, improving operating efficiencies on stronger footfalls and strengthened digital channels with grocery business growing 27% YoY. EBITDA for Retail/Digital was at Rs 68.4/154.8bn up 9.1/16.6% YoY and 16.7/2.9% QoQ. The robust growth in Telecom EBITDA is attributed to the tariff hikes where the ARPU stood at Rs 203.3 and rapid 5G adoption supporting subscribers’ addition by 3.3mn (to 482.1mn subs), traction in FTTH supported the overall growth as well.

* The reported net debt stood at Rs 1,154.7bn, reduced by Rs 39bn YoY and Rs 9.7bn QoQ on account of better cash flows. The capex at Rs 322.6bn is lower than last quarter’s Rs 340.2bn.

Valuation

We maintain a BUY rating on the stock on SOTP basis at a TP of Rs 1,500/share. The O2C contributes Rs315, upstream Rs90, and Jio platforms and Retail at Rs 442/660. New Energy piece adds Rs63 and a reduction of Rs70 of Net debt.

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