Buy Reliance Industries Ltd For Target Rs. 1,570 By Emkay Global Financial Services
We upgrade RIL to BUY from Add on attractive valuations. RIL’s consol Q3FY25 EBITDA stood at Rs438bn – a 4% beat to our estimate, as Retail/O2C was 10%/6% above our estimate, while Upstream and Jio were largely in-line. Topline growth of 9% YoY in Retail vs expectations of a marginal decline resulted in better profits amid stable margins. Consol PAT at Rs185bn beat our estimates by 3%, amid higher share of minority interest and lower other income. Net debt fell 1% QoQ to Rs1.15trn, whereas capex stood at Rs323bn, down 5% QoQ. The management indicated healthy growth in Retail led by festive as well as streamlining, and outlined ongoing downstream expansion projects in O2C as well as margins regressing back to midcycle. We largely retain FY25-27E earnings, while trimming our Sep-25E TP by 6% to Rs1,570 due to 10% cut in Retail multiple. New energy development and vertical monetization are key triggers for the stock.
Key result highlights:
O2C saw recovery QoQ, led by improvement in refining spreads despite muted polyester chain deltas, and supported by cheaper ethane and a better fuel retail business. O2C feedstock/sales stood at 20.2mmt/17.9mmt, flat/up 1% QoQ, whereas EBITDA/mt rose 15% to USD84. Upstream EBITDA rose 5% QoQ to Rs55.7bn, as opex fell 14% (lower than expected), whereas KG Basin gas volumes were slightly lower at 28.0mmscmd, amid marginally higher prices. Jio added 3.3mn of net subs (vs Emkay: flat), and ARPU was 1% lower at Rs203.3 (up 4% QoQ). Jio’s EBITDA rose 3% QoQ to Rs166.4bn. Network opex rose 1% QoQ to Rs83.6bn. Retail EBITDA increased 17% QoQ to Rs68.4bn, up 9% YoY, with revenue also increasing at a similar rate. Net store addition was 156, with retail area down 3% QoQ to 77.4mn sqft. RIL’s other income rose 9% YoY to Rs42.1bn (a 14% miss), while share of MI stood at Rs33.9bn vs Rs27.6bn QoQ. ETR was slightly lower, at 23.9%.
Management KTAs:
The company expects positive near-term outlook for gasoline cracks, on Chinese spring festival and Ramadan in Q4FY25, while diesel could remain supported by heating demand and higher gas prices. Ongoing projects in O2C would expand downstream chemical capacity. Current KG Basin/CBM gas output is 28.0/0.8mmscmd. LNG prices are likely to be steady in the near term, on LNG terminal delays and high European demand on restocking. Jio is yet to see the full impact of the tariff hike, while subscriber adds were healthy in Q3, supported by home connections; 5G now accounts for 40% of its wireless traffic amid the FTTH and AirFiber scale-up. Retail focus is on the tech platform, with supply chain and distribution capabilities (incl express deliveries) sustaining growth in the near-to-medium term. The balance sheet remains stable, with cash profit of Rs380bn.
Valuation:
We value RIL on SOTP basis, with core segments using Sep-26E EV/EBITDA and Upstream/New Energy/Other segments using DCF+premium/EV-IC/EV-sales methodologies. We largely retain our EV/EBITDA for all segments, except Retail (cut to 32x from 35x, on modest growth trends). Key risks: Adverse commodity/currency, B2C competition, delay in monetization of ventures, and policy and new business risks.
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