Jio fails to fire but retail and refining power RIL

In fact, RIL’s December quarter (Q3FY22) results were marked by a sharp jump in retail business. Store operations returned to normal with footfall at 95% of pre-Covid levels. Festive season sales and record store sales boosted the segment’s revenue. Grocery, consumer electronics, apparel and footwear categories saw strong demand. Analysts at Jefferies India Pvt Ltd wrote in a January 22 report, “A low base coupled with increased mobility enabled Reliance Retail’s core revenues to more than double with a two-year CAGR (compound annual growth rate) during Q3.” helped.” ,

RIL’s consolidated EBITDA in the third quarter was 6% ahead of Jefferies’ estimates, driven by a massive 11% gain in the retail business. Ebitda means earnings before interest, tax, depreciation and amortization and does not include other income. Note that RIL’s Ebitda rose 14% sequentially in Q3 29,706 crores. the figure is at the top 28,380 crore estimates in a Bloomberg poll of analysts.

Meanwhile, the drop in subscriber base in Reliance Jio is a sore point. In Q3, on account of SIM consolidation, Jio’s net subscriber loss stood at 8.5 million as compared to 11.1 million in Q2. In such a situation, continuous subscriber loss is discouraging.

Jefferies said, “Jio’s tremendous subscriber count may indicate lower-than-expected subscriber count for Bharti (Airtel) in Q3.” On the bright side, Jio’s average revenue per user (Arpu) grew 8% year-on-year. common ground for 151.6. “The recent tariff hike amid customer churn suggests that Jio’s focus continues to shift towards Arpu-led growth, which bodes well for the overall pricing environment,” said analysts at Jefferies.

RIL’s highest revenue contributing business, Oil to Chemicals (O2C), witnessed strong growth in the last quarter, though the segment’s performance is almost in line with expectations. Within O2C, the refining segment performed well, but petrochemicals margins remained weak. The refining environment improved, with benchmark Singapore gross refining margin rising to $6.1 a barrel in the third quarter from $3.8 a barrel in the second quarter. The oil and gas E&P (exploration and production) business also performed well, led by a significant revival in KG D6 production and higher price realizations.

With improved demand, analysts expect refining margins to remain strong in the near-to-medium term. Nevertheless, the fortunes of RIL stock are closely tied to its consumer businesses, retail and telecom. Pinakin Parekh, analyst at JP Morgan India Pvt Ltd. Ltd in its report on January 22 wrote, “O2C+E&P is only 30% of our price target and therefore, for the stock price, the key driver will remain high multiple business such as retail (valued at 43x FY23 EV/Ebitda) ) , Jio (approximately 13x FY23 EV/Ebitda and a sharp premium to peers) and New Energy ($20bn equity option value). EV is enterprise value. JP Morgan’s price target for RIL stock 2,575 per share. RIL closed on Friday 2,477.85 on NSE.

Nitin Tiwari, an analyst at Yes Securities Ltd, said RIL’s massive investment plans in renewable energy will transform its energy business and improve earnings prospects over time.

That said, the outperformance in RIL’s shares over the past six months suggests that investors have factored in a substantial portion of optimism. In the short term, intermittent disruptions due to the third COVID wave could have an impact on the retail business. Also, there is a need to keep an eye on Jio customer additions.

ujjval.j@livemint.com