140% return in 5 years! Is this index heavyweight still a 'buy'? Read on

At a time, when most blue chip companies have given muted performance so far for the fourth quarter (Q4FY23) of fiscal 2022-23, Reliance Industries (RIL) stands out as it beat the analysts' expectations on most parameters. The oil-to-telecom conglomerate, which released its Q4 results, last Friday (April 21), reported its highest-ever quarterly net profit of Rs 19,299 crore, on the back of stronger earnings from the oil and petrochemicals business and steady growth in retail and telecom operations.

The Mukesh Ambani-led company's consolidated net profit of Rs 19,299 crore, or Rs 28.52 per share, in January-March compares to Rs 16,203 crore, or Rs 23.95 a share, earnings in the same period a year back, the earnings release said. 

The company added that its O2C segment posted its highest-ever operating profit despite global uncertainties and disruptions in commodity trade flows. "Our oil and gas segment also delivered very strong growth and is now poised to contribute nearly 30 per cent of India's domestic gas production," Mukesh Dhirubhai Ambani, chairman and managing director, said.

Further, RIL's annual EBITDA crossed the benchmark of Rs 1.5 lakh crore for the first time; the record-high EBITDA stood at Rs 154,691 crore, up 23.1 per cent year-on-year. Also, its EBITDA and net profit have doubled in the last five years. EBITDA stands for earnings before interest, tax, depreciation, and amortisation. 

Although Reliance Jio’s EBIDTA growth and ARPU were flat, the Reliance Retail segment registered excellent growth numbers backed by the expansion of its physical and digital footprint and a significant increase in footfall. RJio’s revenue grew 2 per cent QoQ in 4QFY23, led by 1.5 per cent subscriber additions and a marginal rise (Rs 178.8) in ARPU or average revenue per user.  

What analysts say

Most analysts tracking the stock say that RIL’s consumer business will be the growth driver, going ahead. Tariff hikes undertaken by Jio would be a key monitorable. The O2C segment is likely to improve further with the addition of new refining capacity with an expected pickup in demand from China in the second half of 2023.

Analysts at Prabhudas Lillladher say that they remain impressed with RIL’s vertical growth owing to likely recovery in the petrochemicals business, the ramp-up of KGD6 gas volumes to 30mmscmd (Q4: 20mmscmd), continued rollout of 5G services possibly aiding ARPU growth, as data usage increases and continued retail store addition along with the launch of FMCG & beauty products.

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The brokerage has retained a ‘BUY’ rating on the stock with a price target of Rs 2,822 (Rs 2,827 earlier) to factor in higher Jio debt.

Bharat Chhoda, Bhupendra Tiwary, and Harshal Mehta, research analysts at ICICI Securities, list three major triggers for RIL's future price performance - 

• Increment value accretion from the ‘digital ecosystem’ that will be captured at the Jio Platforms (JPL) level
• Steady FCF generation in the retail segment would enable the company to maintain debt at lower levels and improve its ability to invest in future inorganic opportunities
• A rise in GRMs will be the key to lifting O2C earnings. Steady cash flow from traditional business to enable RIL to invest in new energy verticals

The brokerage has retained 'BUY' on the stock with the target of Rs 2,850 on a SoTP basis. SOTP stands for sum-of-the-parts valuation. As per Investopedia, it is a process of valuing a company by determining what its aggregate divisions would be worth if they were spun off or acquired by another company.

However, a decline in crude prices and lower-than-expected refining margins could play spoilsport. 

As regards Reliance Jio, Motilal Oswal Financial Securities notes that the company is aggressively rolling out 5G, deploying nearly 60,000 5G sites and extending coverage in 2,300 cities/towns. Also, RIL remains on track to complete the pan-India rollout by Dec 23E. "Subsequently, we have raised our FY24E/25E capex for Reliance Jio to Rs 38,000 crore/Rs 31,000 crore against Rs 28,000 crore/Rs 26,000 crore earlier," the brokerage said in its results review note. It says that the long-term outlook for Jio is intact with market share gains from VIL, tariff hikes, Jiofibre subscriber growth and other digital avenues triggered by the 5G rollout.

The brokerage retains a BUY rating on the stock with a target price of Rs 2,800.

Stock price

The shares of RIL rose as much as 1.44 per cent to Rs 2,382.90 apiece on the BSE in morning trade. In the past one month, the stock has gained 6.5 per cent while in the last one year, the stock has slipped 15 per cent, BSE data show. However, the stock has given hefty returns to long-term investors as the scrip has jumped nearly 140 per cent in the last five years. In comparison, the benchmark S&P Sensex has given around 70 per cent returns during the window.