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RIL’s Cons 4QFY24 EBITDA was 1% above JMFe/consensus at INR 425bn (up 10.8% YoY and up 4.6% QoQ) due to stronger-than-expected O2C EBITDA partly offset by weaker Retail EBITDA, while Digital EBITDA was in line. O2C business EBITDA at INR 167.8bn was 6.7% above JMFe driven by strong GRMs while E&P EBITDA was also 3.6% above JMFe at INR 56bn. Digital EBITDA at INR 146.4bn was in line with JMFe; ARPU was flattish QoQ but subscriber growth continued to be robust, at 10.9mn. Retail business revenue was down 7.7% QoQ and EBITDA was down 7.0% QoQ due to store rationalisation and seasonality. More importantly, capex declined sharply to INR 232bn in 4QFY24 (vs. INR 301bn in 3QFY24 and INR 388bn in 2QFY24) driven by moderation in 5G capex– this would be positive for potential FCF generation if this becomes the new sustainable capex run-rate. We reiterate BUY on RIL (revised TP of INR 3,320) as we believe net debt concerns are overdone, and also because RIL has industry leading capabilities across businesses to drive robust 17-18% EPS CAGR over the next 5 years.

* O2C business EBITDA at INR 167.8bn (6.7% above JMFe); E&P segment EBITDA also 3.6% above JMFe at INR 56bn: O2C EBITDA at INR 167.8bn (up 19.3% QoQ and up 3.0% YoY on a high base) was 6.7% above JMFe of INR 157.2bn – hence, implied GRM was higher at ~USD 12.2/bbl vs. JMFe of USD 11.2bbl (vs. ~USD 10/bbl implied in 3QFY24), while petchem margin was weak as expected. Further, E&P segment EBITDA was 3.6% above JMFe at INR 56bn in 4QFY24 (though down 3.4% QoQ due to rise in govt profit share as per PSC). KG D6 block is currently producing ~30mmscmd of gas and 23kbpd of oil condensate. On the New Energy business, the management said it remains committed to new projects and initiatives, including those in the New Energy segment, which will help deliver sustainable growth in future.

* Digital EBITDA at INR 146.4bn, in line with JMFe; ARPU flattish QoQ but subs growth continues to be robust, at 10.9mn: Digital segment EBITDA at INR 146.4bn (up 2.7% QoQ and up 9.4% YoY) was in line with JMFe despite ARPU being flat QoQ at INR 181.7 (vs. JMFe of INR 182.5). However, net subscriber (subs) addition was higher than expected at 10.9mn in 4QFY24 vs. JMFe of 10.5mn net addition (vs. net addition of 11.2mn in 3QFY24); monthly churn was 1.5%. The flattish ARPU is due to majority of subs addition being driven by the low-ARPU Jio Bharat phone, promotional 5G offers and 1 lesser day in 4QFY24. Jio standalone 4QFY24 revenue was 0.3% below JMFe at INR 260.8bn (up 2.2% QoQ and up 11% YoY). Jio’s standalone 4QFY24 EBITDA was also 0.5% below JMFe at INR 137.3bn (up 2.3% QoQ and up 11.5% YoY); EBITDA margin was 52.7% in 4QFY24 (vs. 52.6% in 3QFY24). Network cost was in line; SG&A cost was higher but was offset by lower other expenses. Over 108mn subs migrated to Jio’s 5G network (vs. around 90mn at end-3QFY24); and Jio’s 5G network is now carrying almost 28% of Jio’s wireless data traffic (vs. around 25% at end-3QFY24). JioAirFiber is showing strong traction and is now available in ~ 5,900 cities/towns (vs. 4,000 cities at end-3QFY24).

* Store rationalisation and seasonality resulted in 7.7% QoQ decline in Retail business revenue and 7.0% decline in EBITDA: Retail business performance in 4QFY24 was impacted due to store rationalisation and seasonality. Gross revenue was down 7.7% QoQ (on a high base due to strong festive demand in 3QFY24) but up 10.6% YoY at INR 766bn; hence EBITDA was also down 7.0% QoQ at INR 58.3bn (though up 18.4% YoY) and was 7.5% below JMFe. EBITDA margin was up 7bps QoQ at 7.6% in 4QFY24. A total of 18,836 physical stores are operational (with 62 stores added in 4QFY24, with an area of 6.2mn sqft), taking total area to 79.1mn sqft area (vs. 72.9mn sqft area at end3QFY24).

* Capex declines sharply to INR 232bn in 4QFY24 - would be positive for potential FCF generation if this becomes the new sustainable capex run-rate: RIL’s consolidated 4QFY24 capex declined sharply to INR 232bn driven by moderation in 5G capex (vs. capex of INR 301bn in 3QFY24 and INR 388bn in 2QFY24) - this would be positive for potential FCF generation if it becomes the new sustainable capex run-rate. This takes total FY24 capex down to INR 1,318bn (vs. FY23 capex of INR 1,418bn ex-spectrum and INR 2,355bn including spectrum). However, reported net debt decline was limited to INR 30.9bn in 4QFY24 (net debt of INR 1,163bn at end-4QFY24 vs. INR 1,194bn at end3QFY24) probably due to increase in working capital and payment of capex creditors.

* Net debt concerns overdone; we reiterate BUY on robust 17-18% EPS CAGR over the next 5 years: We have marginally raised our FY25-26 estimate by ~1% factoring in FY24 financials; our TP is also marginally increased to INR 3,320 (from INR 3,300). We reiterate BUY as we believe concerns on debt are overdone as we expect RIL’s net debt to decline gradually as capex will not only moderate (INR 1.2trln-1.4trln p.a. vs. INR 2.3trln in FY23) 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 (0.65x in Mar’24) also gives comfort. Be that as it may, we believe RIL could still drive a robust 14-15% EPS CAGR over the next 3-5 years with Jio’s ARPU expected to rise at 10% CAGR over FY23- 28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market — A Giant Digital Leap. Further, strong growth momentum continues in the company’s retail business as RIL is driving omni-channel capabilities across segments. At CMP, the stock is trading at FY26E P/E of 17.7x (3 yr avg: 24x) and FY26E EV/EBITDA of 9.8x (3 yr avg: 13.1x). Key risks: a) continued high capex, resulting in rising net debt with limited earnings visibility from new projects; b) weak subs addition and limited ARPU hike; and c) weak downstream margins due to macro concerns.

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