RIL Q2 net profit may jump led by all-round growth in oil, Jio telecom, retail businesses
Reliance Industries is expected to report a sharp jump in fiscal second quarter net profit even on a marginal revenue uptick, primarily led by refining margin gains. India’s largest company by market capitalisation is likely to show robust performance across segments, except some weakness in the petrochemicals segment.
Analysts foresee steady growth in all areas in Q2 FY24 after a weak Q1 FY24 O2C performance. Retail EBITDA will increase with higher foot traffic. Jio's EBITDA will gain from new subscribers, and Oil and Gas EBITDA will improve with increased gas production.
According to a Moneycontrol survey of 10 brokerages, RIL’s consolidated net sales are expected to come in at Rs 2.31 lakh crore in Q2 FY24, up 0.5 percent year-on-year, and 11 percent quarter-on-quarter.
Net profit is estimated at Rs 17,482 crore, up 27.2 percent year-on-year. RIL’s second quarter EBITDA is expected at Rs 39,696 crore, up 28 percent year-on-year and 9.2 percent quarter-on-quarter.
The company is scheduled to report its July-September quarter earnings on October 27.
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According to analysts, RIL’s Oil-to-Chemicals segment EBITDA is likely to increase by 3% to Rs 15,700 crore in 1QFY24, driven by a strong GRM of $12.5/bbl. This increase is due to a sharp rise in diesel cracks, although it was partly offset by a reduction in the Russian crude discount, lower refining throughput due to maintenance, and weaker petchem margins.
While the Mukesh Ambani-led company has stopped reporting gross refining margin separately, it closely tracks and usually outperforms the benchmark Singapore GRM, which improved to $9.6 a barrel in Q2 from around $4 a barrel in the previous quarter.
The upstream segment's EBITDA is expected to rise by 15% to Rs 4,600 crore due to increased gas production, with KG-D6 volumes estimated at 26 mmscmd in Q2. Ambit predicts substantial improvement in RIL's upstream oil and gas segment, driven by higher revenue from crude and JKM pricing, and as the MJ field reaches its full potential.
For the digital (Jio) segment, analysts expect a 4% increase in EBITDA to reach Rs 14,300 crore, driven by 10 million new subscribers and an average revenue per user (ARPU) of Rs 183 per month. Jefferies expects a 2% sequential growth in Jio's Ebitda led by 11 million subscribers’ additions, and a 1.6% quarter-on-quarter increase in ARPU driven by higher no of days and improving subscriber mix.
Retail business revenue is expected to rise by 14 percent year-on-year, and 6 percent quarter-on-quarter, with an EBITDA margin improvement to 7.5 percent, driven by store expansion, festive season, and increased foot traffic.
Motilal Oswal analysts suggest keeping an eye on the Rs 75,000 crore new energy business, retail store expansion, and telecom pricing for key insights. Analysts said key important things to watch for are guidance on new energy spending, retail expansion, and telecom tariffs.
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JM Financial is optimistic about the RIL, downplaying net debt concerns. The brokerage said that Reliance Industries has the leading industry capabilities to drive a robust 14-15% EPS CAGR over the next 3-5 years. This growth is expected due to a projected 10% CAGR in Jio's ARPU from FY23-28 and the sustained strong performance in Retail. Additionally, with APM gas price capped at $6.5/mmbtu and a decrease in spot LNG prices, the outlook remains positive, JM Financial report added.
Meanwhile Brokerage Ambit Capital, keeping its underweight stance on RIL, advises investors to consider using uncertain investment announcements to reduce positions. Ambit highlights concerns regarding RIL, citing high cash burn for new commerce success, increasing InvIT costs impacting Jio's profitability, and limited potential in e-retailing.
RIL's aggressive expansion in new energy, petrochemicals, retail, 5G, and digital services may increase leverage and strain cash flows, especially with government windfall taxes. Ambit analysts express confidence in Jio monetization and COTC integration but caution against new energy and retail efforts.
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