In q2FY24, Reliance Industries (RIL) reported impressive results. Consolidated revenue reached Rs 2,319 billion, a 1% y-o-y growth and a 12% increase compared to the previous quarter. Ebitda also soared, growing 31% y-o-y to Rs 410 billion, surpassing expectations by 8%. This was attributed to strong performance in the O2C (oil-to-chemicals) segment, improved gas price realisation, and steady Ebitda growth of 13% and 32% y-o-y in RJio and Retail, respectively. Consequently, PAT increased by 27% y-o-y, reaching Rs 174 billion, exceeding expectations by 5%.
In the telecom sector, RJio’s revenue and Ebitda grew 3% q-o-q, in line with expectations. This growth was driven by a 2.5% increase in subscribers and a slight ARPU improvement.
Looking ahead, we anticipate healthy O2C profitability over the next 1.5 years for several reasons: (i) Refining capacity additions in CY24 (0.6 million barrels per day) are lagging behind oil demand growth, (ii) CY23 represents the final year of substantial supply growth for olefins, and (iii) there are low inventories for oil products and polyethylene/polypropylene (PE/ PP) on a global scale. This suggests that re-stocking could lead to a significant increase in margins.
Moreover, net debt improved sequentially, reaching `1,177.3 billion in Q2 compared to Rs 1,266.2 billion in Q1. Cash and cash equivalents include `103.5 billion from the capital raise in Reliance Retail.
Utilizing a sum-of-the-parts (SOTP) approach, we apply a multiple of 7.5x EV/Ebitda to evaluate the Refining and Petrochemical segments, leading to a standalone business valuation of ` 878 per share. Furthermore, we attribute an equity valuation of `760 per share to RJio and `1,353 per share to Reliance Retail, accounting for the recent stake sale. Our target price is now updated to reflect the JFS valuation. We maintain our BUY rating with a revised target price of `2,760.
