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Standalone businesses fuel operating performance

* Reliance Industries (RIL)’s 4QFY24 consolidated revenue, EBITDA, and PAT grew 11%, 11%, and remained flat YoY at INR2.4t, INR425b, and INR190b (8% miss, 10% beat, and 8% beat), respectively, led by growth across segments. EBITDA and PAT were above estimates primarily due to the growth in the O2C segment, which was partly offset by lower-thanestimated performance in the retail segment.

* RJio’s revenue/EBITDA/PAT increased 2%/3%/2% QoQ (in line) in 4QFY24, led by 2% subscriber additions, while ARPU was flat QoQ. The company’s capex stood at INR533b in FY24, which led to a free cash outflow of INR152b.

* Reliance Retail posted soft revenue growth of 10% YoY (10% miss), even though the area additions were robust at 21% YoY. EBITDA growth of 18% YoY (6% miss) was offset by higher depreciation and interest costs. Consequently, PAT grew 12% YoY during the quarter.

* Standalone EBITDA stood at INR200b in 4QFY24 (10% above our estimate), supported by better feedstock sourcing, higher domestic product placement, and increased sales volume QoQ. O2C’s earnings in 1QFY25 may see some pressure as volume is expected to be flat QoQ, while SG GRM in Apr’24 has been down 44% vs. 4QFY24 average. Overall though, we are building in healthy O2C profitability over the next 1.5 years as: 1) the refining net capacity additions in CY24 (at 0.6mnbopd) are trailing oil demand growth of 1.2mnbopd (IEA); and 2) CY23 was the last year of substantial supply growth (~5%; CY20-24) for olefins. RIL also announced that the development plan for incremental production from the KG-D6 fields has been approved by the government, and the company expects to add 4- 5mmscmd to overall volumes in the next few years.

* Net debt improved sequentially to INR1,163b from INR1,194b. Capex for the quarter narrowed down sequentially to INR232b vs. INR301b.

* OCF for FY24 improved to INR1,563b (+38% YoY) due to an increase in EBITDA (+14% YoY) and release of working capital. Capex rose 4% YoY to INR1,376b, which resulted in an FCF generation of INR187b (vs. -INR182b in FY23).

* Using our SoTP approach, we value the Refining and Petrochemical segment at 8x FY26E EV/EBITDA to arrive at a valuation of INR1,029/sh for the Standalone business. We ascribe an equity valuation of INR810/sh to RJio and INR1,593/sh to Reliance Retail as well as INR37/sh towards the new energy business. Consequently, we reiterate our BUY rating on RIL with a TP of INR3,245

RJio – growth driven by strong subscriber additions (in line)

* RJio’s revenue/EBITDA rose 2%/3% QoQ (in line) in 4QFY24, led by 2% subscriber additions (10.9m additions), while ARPU was flat QoQ at INR182. PAT was up 2% QoQ, in line with the EBITDA growth.

* Capex was elevated at INR533b (vs. Bharti India’s estimated capex of ~INR331b for FY24) due to the 5G rollout. The majority of the 5G rollout is complete, and we expect capex to decline in FY25/26 to INR392b/INR356b.

* We expect a revenue/EBITDA CAGR of 12%/14% over FY24-26, factoring in 8%/3% CAGR for subs/ARPU over the same period. The long-term outlook remains intact with market share gains from VIL, tariff hikes, and new growth opportunities such as Jiofiber, Airfiber, and JioBharat, along with other digital avenues triggered by the 5G rollout.

Reliance Retail – soft revenue growth; margin sustained

* Reliance Retail posted soft revenue growth of 10% YoY (10% miss), though area additions were robust at 21% YoY. Revenue per sqft declined 9% YoY. EBITDA growth of 18% YoY (6% miss) was offset by higher depreciation and interest costs. Consequently, PAT grew 12% YoY during the quarter.

* The growth was propelled by footprint additions. Overall footfalls grew 24% YoY to 272m across formats, and the customer base jumped 22% YoY to 304m. However, the number of transactions slowed down to 311m (+6% YoY).

* We have cut our revenue/EBITDA estimates by 5% each for FY25/26 owing to soft growth. We expect revenue and EBITDA to register 22% and 25% CAGR, respectively, over FY24-26 fueled by accelerated store additions across segments, a recovery in store productivity, and an aggressive foray into digital & new commerce.

Standalone: Beat led by better feedstock sourcing, ethane cracking, and higher domestic product placement

* Revenue stood at INR1,468b (+13% YoY); EBITDA was at INR200b (est. of INR183b, +5% YoY); while EBITDA/mt stood at ~USD100 (-8% YoY; our est. at USD91/mt) with polymer prices and margins contracting YoY due to subdued global demand.

* Production meant for sale was at 17.1mmt (flat YoY). Reported PAT stood at INR113b (est. of IN100b, -18% YoY).

* Gas price realization for KG-D6 gas declined to USD9.53/mmBtu in 4QFY24 from USD11.39/mmBtu in 4QFY23. EBITDA for Oil & Gas exploration increased 50% YoY to INR57.4b during the quarter.

* For FY24, revenue stood at INR5,345b (-1% YoY), EBITDA was at INR743b (+11% YoY), and adj. PAT stood at INR420b (-2% YoY). Production meant for sale was at 67.8mmt (+2% YoY); while EBITDA/mt stood at USD95.9 (-4% YoY).

* Key macro performance highlights: ? Global oil demand in 4QFY24 rose 1.6mnbopd YoY to 102mnbopd, with strong demand mainly from the Americas and Asia.

* Global refinery throughput was higher by 0.2mb/d YoY at 81.8mb/d in 4QFY24.

* Crude oil benchmarks improved YoY, as the trend in demand remained positive despite tanker constraints due to the Red Sea crisis.

* Oil prices were further supported by voluntary cuts by OPEC+ and the reduced availability of Russian production.

Valuation and view

* Segment-wise, the Consumer business continues to post double-digit EBITDA growth, with both RJio and Reliance Retail likely to record 14% and 25% EBITDA CAGR over FY24-26, respectively. The growth would be driven by footprint additions, new categories in the retail sector, the focused approach to subscriber growth, and the expected tariff hikes in the telecom business. In O2C, we see Refining and Petchem segments picking up from the current levels, as net capacity additions for both segments are tapering off on a YoY basis. Moreover, FY25 would witness the full benefit of the ramped-up volumes at the MJ Field.

* We value Reliance Retail’s core business at 40x EV/EBITDA on FY26E and connectivity at 5x to arrive at our valuation of INR1,812. Reliance Retail’s value in RIL share comes to INR1,593 (for its 87.9% stake). Our premium valuation multiples capture the opportunity for rapid expansion in its retail business and the aggressive rollouts of the digital platforms.

* We are factoring in 12%/14% revenue/EBITDA CAGR during FY24-26. RJio is valued at an EV/EBITDA multiple of 12x on FY26E EBITDA. The potential tariff hikes, market share gains from VIL, and opportunities in Digital offer an option value of INR120 (Exhibit 15), thereby arriving at a valuation of INR810/sh (adjusted for its 66% stake).

* Overall, we remain positive on both the Refining and Petrochemical segments. Global oil demand for CY24 is likely to be at 103mnbopd (up 1.2mnbopd YoY). Gasoil cracks are anticipated to remain firm due to the strength in jet fuel demand and the limited availability of heavy crude.

* While global downstream chemical markets remain well-supplied in the near term, we note that capacity growth is tapering off and has passed its peak for key products such as PE, PP, and PX.

* We model a capex of INR650b for FY25 and FY26 each in the Standalone business, considering RIL’s investments in new-age greener businesses (such as solar energy, and a hydrogen ecosystem in India).

* Consolidated gross debt rose to INR3.2t in FY24 (from INR3.14t in FY23), with cash & cash equivalents at INR2.1t. Net debt stood at INR1.16t (according to the management).

* We have raised our capex for FY25-26E to INR1.2t each year, modeling INR392b/ INR356b in Telecom, INR650b each year in the Standalone business, and the rest in Others, considering RIL’s investments in new-age greener businesses.

* Using our SoTP approach, we value the Refining and Petrochemical segment at 8x FY26E EV/EBITDA to arrive at a valuation of INR1,029/sh for the Standalone business. We ascribe an equity valuation of INR810/sh to RJio and INR1,593/sh to Reliance Retail as well as INR37/sh towards the new energy business. Consequently, we reiterate our BUY rating on RIL with a TP of INR3,245.

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