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Our View

Reliance Industries (RIL) reported a mixed Q1FY25, with operating profit at Rs 387.7bn (+1.8% YoY; -8.8% QoQ). Consolidated revenue grew 11.7% YoY but declined 2% QoQ. The O2C segment faced challenges with declining product cracks despite improved petchem margins, achieving an assumed GRM of ~USD10.5/bbl. Upstream business performed strongly with higher production from KGD6 and CBM, contributing significantly to India's gas production. Retail sales showed 8.1% YoY growth but dipped 1.4% QoQ. Jio added 7.9mn subscribers with ARPU maintained at Rs 181.7. Net debt reduced by Rs 143bn YoY to Rs 1,123.41bn, with capex rising to Rs 288bn due to ongoing investments in 5G, retail infrastructure, and new energy projects. Maintain BUY with an unchanged TP of Rs 3,540/shr.

Result Highlights

 * Performance: The consolidated revenue at Rs 2,318bn was up 11.7% YoY but down 2% QoQ. While EBITDA/PAT at Rs 387.7/174.5bn was up 1.8%/ down 4.5% YoY and declining 8.8%/17.9% QoQ. The weak O2C performance was driven by declining product cracks despite improved petchem margins, assumed GRM of ~USD 10.5/bbl.

 * The O2C performance faced headwinds in Q1FY25. Global oil demand increased in Q1FY25 by 0.7 mb/d YoY. However, despite this rise, there was weakness in transportation fuel cracks, particularly gasoline cracks which were down 30% YoY. The reported EBITDA at Rs 130.9bn was down 14.3% YoY and 22% QoQ. The YoY decline is a result of ~30% dip in fuel cracks and 15-17% fall in polymer deltas across the industry. While the steeper QoQ surge was witnessed due to a sharp correction of ~36% across transportation fuel cracks on commissioning of new refineries and subpar demand despite improved PE (+7%) and PVC (+17%) deltas and ethane cracks.

 * The strong domestic upstream segment performance was supported by higher production for KGD6 and CBM partially offsetting lower gas prices. While KGD6 continues to contribute >30% of India’s gas production, it marginally declined to 28.7mmscmd and 21,640bbls/day of oil.

 * Retail sales dipped to Rs 756.3bn, down 1.4% sequentially but showcased an 8.1% YoY growth coming from Consumer business, improving operating efficiencies on stronger footfalls and strengthened digital channels. EBITDA for Retail/Digital was at Rs 56.7/149.4bn up 10.1/8.9% YoY but down 2.7%/ up 2% QoQ. The subscriber’s addition for Jio was at 7.9mn (to 489.7mn subs), traction in FTTH, ARPU maintained at Rs 181.7 supported the overall growth.

 * The reported net debt stood at Rs 1,123.41bn, reduced by Rs 143bn YoY on account of accelerated capex towards 5G roll-out, expansion of retail infrastructure and new energy business. The capex at Rs 288bn is higher than last qtr’s Rs 232bn.

Valuation

We value the stock on SOTP basis at an unchanged TP of Rs 3,540/share. The O2C contributes Rs716, upstream Rs168, and Jio platforms and Retail at Rs 750/1903. New Energy piece adds Rs200 and a reduction of Rs196 of Net debt.

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