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Good 3Q on recovery in retail and O2C; RJio weak

* Reliance Industries (RIL)’s 3QFY25 consolidated EBITDA was up 12% QoQ (+8% YoY) and came in 4% above our estimate, driven by a recovery in Retail (EBITDA grew 9% YoY; 8% beat) and O2C (+16% QoQ; 10% beat).

* However, RJio was weaker with modest ~3% QoQ EBITDA growth (3% miss) on lower-than-expected tariff hike benefits.

* Attributable PAT improved ~7% YoY to INR185b (+12% QoQ) and was 5% ahead on higher EBITDA.

* Reported consolidated net debt declined INR10b sequentially to INR1,155b.

* The company’s 3Q capex dipped ~5% QoQ to INR323b (but up ~7% YoY). Its 9MFY25 capex, at INR951b, was ~12% lower YoY, likely on account of the slowdown in RJio’s 5G capex.

* Standalone EBITDA was up 13% QoQ (4% YoY), driven by a slight improvement in volumes, higher gasoil and ATF cracks, higher domestic product placement, and maximization of ethane feedstock cracking.

* We raise our FY25E EBITDA/PAT by 2%/4%; however, our FY26-27 estimates are broadly unchanged. We model ~10% EBITDA/PAT CAGR over FY24-27, driven by more frequent tariff hikes in RJio and growth recovery in Retail.

* Using the SoTP method, we value the O2C/E&P segments at 7.5x/6x Mar’27 EV/EBITDA to arrive at an enterprise value of INR436/sh for the standalone business. We ascribe an equity valuation of INR530/sh and INR625/sh to RIL’s stake in JPL and RRVL, respectively. We assign INR47/sh (~INR630b equity value) to the New Energy business and INR26/sh to RIL’s stake in Disney JV (based on transaction value). Reiterate BUY with a revised TP of INR1,600 (earlier INR1,550).

Reliance Retail – Broad-based growth recovery across all categories

* Reliance Retail’s consolidated net revenue increased ~7% YoY (10% miss) driven by productivity improvement and increased customer engagements during the festive period.

* The store additions remained robust, with the company adding 779 new stores and closing 623 stores. This led to a net addition of 156 stores to 19,102. However, the net area declined further by ~2m sqft to 77.4m sqft, implying a continuation of store/area consolidation.

* Operational EBITDA grew ~9% YoY to INR66b (~8% beat) as higher revenue was partly offset by ~20bp QoQ margin contraction to 8.3% (20bp miss).

* The quarter recorded footfalls of over 296m across formats, up 5% YoY, while the number of transactions grew 11% YoY.

* We raise our FY25-27E revenue by 3-5% and FY26-27E EBITDA by ~3-4%. We expect a revenue/EBITDA/PAT CAGR of 12%-13% over FY24-27 to reach INR3.9t/ INR320b/INR162b by FY27.

RJio – Weak quarter on lower-than-estimated tariff hike benefit

* RJio’s standalone revenue grew by a modest 3% QoQ (16% YoY; 1% miss) to INR293b, driven by ~1% lower than estimated ARPU (+4% QoQ).

* Overall subscriber net adds came in at ~3.3m (vs. our estimate of stable subscribers QoQ), taking the total subscriber base to 482.1m as subscriber trends normalize.

* Blended ARPU inched up ~4% QoQ (and ~12% YoY) to INR203/month (lower vs. our estimate of INR206) on residual benefits of tariff hikes.

* EBITDA grew 3% QoQ (+17% YoY) to INR155b (3% miss), largely due to weaker revenue and higher SG&A costs. EBITDA margin contracted ~25bp QoQ to 52.8% (~100bp miss). Incremental EBITDA margin for the quarter dipped to ~46% (from 60% in 2QFY25; lower vs. our estimate of ~72%).

* Reported PAT at INR64.8b was up ~4% QoQ (+24% YoY, 4% miss) on account of lower revenue and weaker incremental EBITDA.

* RJio has further ramped up the pace of home connects to ~2m in 3QFY25 through its FWA offering, Jio AirFiber.

* We tweak our subscriber and ARPU estimates. Overall, our FY25-27 estimates are broadly unchanged (<2% change). We continue to build in the next round of tariff hikes (~15% or INR50/month on the base pack) from Dec’25. We expect FY24-27 revenue/EBITDA CAGR at ~17%/20% for RJio, driven by tariff hike flowthrough and potential market share gains.

Standalone: Strong O2C performance; O&G steady

* Revenue stood at INR1,244b (-3% YoY). EBITDA came in at INR152b (est. INR146b; -13% YoY).

* On a QoQ basis, EBITDA was up 13% amid slight improvement in volumes, higher gasoil and ATF cracks, higher domestic product placement, and maximization of ethane feedstock cracking.

* The weakness in EBITDA on a YoY basis was driven by softer cracks in both refining and petrochemicals even as production meant for sale was up 9% on a YoY basis. Standalone results were also impacted by a 5.3% decline in production from KG D6 and lower price realization for condensate and CBM gas. However, a 35% YoY rise was observed in CBM’s production.

* Production meant for sale stood at 17.9mmt (+9% YoY).

* RIL maintained a positive outlook on refining amid strong demand from Chinese New Year, Ramadan, and winter in the Northern Hemisphere.

* The reported PAT was INR87b (est. of INR83b, -12% YoY), a 5% beat vs. our estimate. It was driven by strong EBITDA and lower-than-expected interest expenses. However, other income came in below our estimate.

* Gas price realization for KG-D6 gas increased to USD9.74/mmBtu in 3QFY25 from USD9.66/mmBtu in 3QFY24. Oil & Gas exploration EBITDA declined 4% YoY to INR55.7b, but was up 5% QoQ.

Key macro performance highlights:

* The global oil demand in 3QFY25 rose by 1.5mb/d YoY to 104mb/d.

* The global refinery throughput was higher by 0.75mb/d YoY at 81.8mb/d in 3Q.

* Crude oil benchmarks declined 11.1% YoY, led by a weak Chinese economy, a strong US dollar, and rising supplies from non-OPEC producers.

Spreads in 4QFY25 remain weak:

* From Jan’25 to date, refining cracks for gasoline and jet fuel are up by USD2- 3/bbl vs. 3QFY25 average, while gasoil cracks have declined USD1.5/bbl.

* Polymer/PX cracks in Jan’25 to date have also declined 10-20% vs. 3QFY25 average.

Valuation and view

* Segment-wise, we expect RJio to be the biggest driver of EBITDA growth over FY24-27, driven by more frequent tariff hikes, market share gains in wireless, and ramp-up of the Homes and Enterprise business. We expect growth recovery in retail after the recent rationalization of unprofitable stores and B2B, driven by an increased footprint, category additions, and potential foray into quick commerce.

* Overall, we build in ~10% consolidated EBITDA and PAT CAGR over FY24-27, driven by double-digit EBITDA CAGR in RJio (wireless tariff hikes and FWA rampup) and RR (continued footprint and category expansions). After a subdued FY25, we expect earnings to recover for the O2C segment, driven by improvement in refining margins. However, our FY27 consolidated EBITDA for O2C and E&P is broadly similar to FY24 levels, which could have upside risks.

* We model an annual consolidated capex of INR1.25-1.3t for RIL, as the moderation in RJio capex is likely to be offset by higher capex in New Energy forays. However, we believe the peak of capex is behind, which should lead to FCF generation (~INR950b over FY24-27) and a decline in consol. net debt.

* For Reliance Retail, we ascribe a blended EV/EBITDA multiple of 32.5x (35x for core retail and 6.5x for connectivity), based on average valuations for retail peers (DMart, Trent, ABFRL, Metro Brands, and Vedant Fashions) to arrive at an EV of ~INR10.4t for RRVL and an attributable value of INR625/share (earlier INR580/share) for RIL’s stake in RRVL. Continued recovery in retail revenue growth would be the key near-term trigger.

* We value RJio on DCF implied 12.7x FY27E EV/EBITDA to arrive at our enterprise valuation of INR11.6t (USD137b) and assign ~USD10b valuation to other offerings under JPL. Factoring in the net debt and also the 33.5% minority stake, the attributable value for RIL comes to INR530/share (earlier INR515/share).

* Using the SoTP method, we value the O2C/E&P segments at 7.5x/6.0x Mar’27 EV/EBITDA to arrive at an enterprise value of INR436/sh for the standalone business. We ascribe an equity valuation of INR530/sh and INR6250/sh to RIL’s stake in JPL and RRVL, respectively. We assign INR47/sh (~INR630b equity value) to the New Energy business and INR26/sh to RIL’s stake in Disney JV (based on transaction value). We reiterate our BUY rating with a TP of INR1,600.

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