Buy Reliance Industries Ltd for the Target Rs 1,550 by Emkay Global Financial Services Ltd
RIL posted a sizable 8%/10% beat in 2QFY27 consol EBITDA/APAT, at Rs566/255bn. This was driven by 48% qoq rise in O2C EBITDA to Rs252bn on better margin capture in refining (effective products placement) and improved gasifier performance; also, petchem saw higher deltas and ethane intensity on induction of the seventh VLEC. Jio EBITDA beat estimates by 1%, on better ARPU and margins, while Upstream was largely range-bound. Retail though was weak, with revenue up 1% yoy and EBITDA down 10%, amid festive season mismatch and input cost inflation. Net debt fell 5% qoq to Rs1.17trn. Mgmt sounded constructive on O2C as 5mbpd of refining capacity is offline and ethane sourcing is set to rise from another 2 incoming ships. We believe Jio is on a steady trajectory while Retail should recover in ensuing quarters as festive demand picks up. We raise FY27/28/29E EPS by 15/8/3%, building in better O2C earnings; we realign our blended target multiple lower, from 13x to 11.5x, given weaker Retail, macro volatility, and valuing Jio near CMP with 20% holdco discount. We cut Sep-27E TP by ~8% to Rs1,550, though valuations are highly attractive owing to the recent stock weakness; reiterate BUY on RIL.
Results Highlights
1) O2C improved qoq, on higher fuel cracks/petchem deltas, partially offset by higher crude premiums, freight and insurance, SAED, and under recoveries. O2C feedstock/sales were 20.6mmt/18.1mmt, up 14%/16% qoq, while EBITDA/mt rose 29% qoq to $128.
2) Jio added 9.1mn net subscribers, while ARPU was Rs218.8 (up 1% qoq). JPL’s consol EBITDA rose 5% qoq to Rs222.2bn, with EBITDAM expanding by 81bps qoq on 0.7% qoq decline in network operating charges, while total opex rose 1.2% qoq to Rs195.7bn.
3) Retail EBITDA at Rs61.2bn fell 10% yoy (a 9% miss), as EBITDA margin fell by 30bps, due to ongoing investments in the Digital Commerce business, input cost inflation, and shift in festive season. Net store-count fell by 222; however, retail area was largely stable qoq at 78.4msf. RIL’s other income rose 29% yoy to Rs57.9bn (5% miss), while D/A rose 1% qoq and finance cost was up 24% yoy.
Management KTAs
Refining margin is expected to remain constructive in the near term, with ~5mbpd of refining capacity offline across ME/Russia. Time-chartered vessels contained freight costs while lower LPG diversion supported petchem output. RCPL revenue grew 1.6x yoy, while retail continues online scale-up in FY27, targeting improved profitability in FY28–29. Jio is focusing on digital services monetization beyond tariff hikes, with lower capex intensity supporting FCF. New Energy projects are on track, with RE generation starting from 1Q.
Valuation
Basis SOTP method, we value RIL’s core segments on Sep-28E EV/EBITDA and New Energy/Other segments on EV-IC/EV-EBITDA. We lower blended target multiple owing to higher RFR and segmental realignment. Key risks: Adverse commodity/currency movement, competition, delay in monetization of ventures, and policy risks.
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