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RIL’s consolidated 1QFY26 EBITDA was 3-4% below JMFe/consensus at INR 429bn (down 2.1% QoQ but up 10.7% YoY) primarily due to: a) O2C EBITDA being 4% below JMFe due to impact of shutdown and high fuel oil crack (while E&P EBITDA was in line); and b) Retail EBITDA being 2% below JMFe as consumer electronic sales was impacted due to the early onset of the monsoon. However, Digital EBITDA was 2% above JMFe on robust subscriber addition including FWA. Reported consolidated PAT (after minority interest) was higher at INR 270bn on account of INR 89bn of profit from sale of listed investments (i.e., its stake in Asian Paints). On new energy projects, the management said it is on track to commission giga factories progressively over the next 4-6 quarters; post-commissioning, it expects the energy business to be self-funded by partnering with right players for offtake and financing. Consolidated capex was down INR 62bn QoQ to INR 299bn at end-1QFY26, while net debt was higher by a marginal INR 5bn QoQ at INR 1,176bn. We reiterate BUY (TP of INR 1,700) as we expect net debt to decline gradually, and also because RIL has industry leading capabilities across businesses to drive robust 15-20% EPS CAGR over the next 3-5 years, particularly driven by both consumer businesses.

* Retail operating EBITDA 2% below JMFe at INR 60.4bn, up 10.9% YoY led by 11.3% YoY growth in gross revenue:

Retail gross revenue was at INR 842bn (up 11.3% YoY, but down 5% QoQ on a high base); hence, Retail operating EBITDA was 2% below JMFe at INR 60.4bn (up 10.9% YoY but down 7.2% QoQ on a high base). EBITDA margin declined 17bps QoQ at 7.2% in 1QFY26 (vs. 7.3% in 4QFY25). A total of 19,592 physical stores are operational (252 net stores added in 1QFY26, but total area was up only 0.2mn sqft to 77.6mn sqft, probably as a few larger stores got rationalised and replaced by smaller stores). Grocery and Fashion & Lifestyle (F&L) segment did well while consumer electronic was impacted due to the early onset of the monsoon. Consumer brands’ revenue doubled YoY to INR 44bn in 1QFY26 while JioMart Quick hyper-local daily orders increased 175% YoY and 68% QOQ.

* Digital EBITDA 2.4% above JMFe at INR 183bn on robust subs addition (9.9mn) while ARPU was slightly lower; didn’t comment on timeline for Jio IPO or next tariff hike:

Digital segment EBITDA, at INR 183bn (up 6% QoQ and up 22.5% YoY), was 2.4% above JMFe, due to robust net subscriber addition at 9.9mn (vs. JMFe of 7.2mn) with monthly churn limited at 1.8% while ARPU was slightly lower at INR 209 (vs. JMFe of 210) but still up by INR 2.6 QoQ, aided by residual pass-through of Jul'24 tariff hike and 1 more day QoQ in 1QFY26. Jio’s standalone 1QFY26 revenue was 1% above JMFe at INR 315bn (up 3.8% QoQ and up 18.5% YoY). Further, opex was also 1.6% lower than JMFe; hence, Jio’s standalone 1QFY26 EBITDA was 3.3% above JMFe at INR 173bn (up 6.9% QoQ and up 23.4% YoY); EBITDA margin improved QoQ to 54.9% in 1QFY26 (53.3% in 4QFY25). Network costs, access charges, licence fees & spectrum usage charges were lower than expected while SG&A and other costs were higher than expected. Over 210mn subs migrated to Jio’s 5G network (vs. around 191mn at end-4QFY25); JioAirFiber continues to see strong uptake and there were over 7.4mn JioAirFiber connections at end-1QFY26 (vs. over 5.6mn at end-4QFY25), taking total home connections to over 20mn at end 1QFY26. Data usage per subs jumped 10.1% QoQ to 37GB/month driven by higher mix of 5G and home users and boosted by the IPL season in 1QFY26. The management highlighted that deployment of UBR (unlicensed band radio) has enabled +1mn home connects and is key to achieving the 100mn home target.

* O2C business EBITDA 4% below JMFe at INR 145bn due to impact of shutdown and high fuel oil crack; E&P segment EBITDA in line with JMFe at INR 50bn:

O2C EBITDA was 4% below JMFe at INR 145bn (flat QoQ but up 15% YoY) due to the impact of the shutdown and high fuel-oil crack. Hence, implied GRM was lower at USD 9.4/bbl vs. JMFe of USD 10/bbl (vs. Spore Dubai GRM of USD 5.6/bbl and vs. ~USD 9.6/bbl implied in 4QFY25); implied petchem margin continues to be weak. Jio-bp transportation fuels volume was up 35% adding to O2C EBITDA. Hence, RIL’s overall O2C EBITDA margin was at USD 98/tn, lower than JMFe of USD 99/tn (vs. USD 97/tn in 4QFY25). The management reiterated a stable outlook for refining margin and weak outlook for petchem margin. However, E&P segment EBITDA was in line with JMFe at INR 50bn in 1QFY26 (down 2.9% QoQ) due to natural decline in KG output.

* Consolidated capex down INR 62bn QoQ to INR 299bn at end 1QFY26; net debt slightly higher by marginal INR 5bn QoQ at INR 1,176bn:

RIL’s cons 1QFY26 capex was lower QoQ at INR 299bn (vs. capex of INR 360bn in 4QFY25; INR 1,311bn in FY25 and INR 1,318bn in FY24). Further, reported net debt was up by a marginal INR 5bn QoQ at INR 1,176bn at end-1QFY26 (vs. reported net debt of INR 1,171bn at end-4QFY25). Consolidated gross debt at end-1QFY26 was INR 3,384bn (vs. INR 3,475bn at end4QFY25); while cash and cash equivalents at end-1QFY26 was INR 2,209bn (vs. INR 2,305bn at end-4QFY25).

* Net debt to decline gradually on likely moderation of capex; reiterate BUY as we expect strong 15-20% EPS CAGR over the next 3-5 years driven by both consumer businesses:

We have marginally tweaked our FY26-FY28 estimates; hence, our TP is unchanged at INR 1,700. We reiterate BUY as we expect its net debt to decline gradually because capex will not only moderate (INR 1.2trln-1.4trln p.a. vs. INR 2.3trln in FY23 and INR 1.3trln in FY24 and FY25) but, importantly, also be fully funded by a gradual increase in internal cash generation. RIL’s guidance on keeping reported net debt to EBITDA below 1x (0.7x at end-1QFY26) also gives comfort. Moreover, we believe RIL has industry leading capabilities across businesses to drive robust 15-20% EPS CAGR over the next 3-5 years, particularly driven by both consumer businesses with Jio’s ARPU is expected to rise at 13% CAGR over FY25-28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market. Clarity on the potential timeline and valuation of Jio’s listing could be a possible near- to mediumterm trigger. At CMP, the stock is trading at FY27E P/E of 20.4x (3-yr avg: 24.7x) and FY27E EV/EBITDA of 10.3x (3-yr avg: 12.6x). Key risks: a) high capex, resulting in rising net debt with limited earnings visibility from new projects; b) weak subs addition and limited ARPU hike; c) muted growth in the retail business; and d) subdued O2C margins due to macro concerns

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