Analyst Call Tracker: RIL's strong Q2 performance prompts analysts to raise their expectations

 Analyst Call Tracker: RIL's strong Q2 performance prompts analysts to raise their expectations

Based on Bloomberg data, there are now 34 analysts that have a buy rating on RIL, up from 32 buy calls one month ago. There are now two instead of four "hold" ratings, and there are now two instead of three "sell" ratings.

Following Reliance Industries' second-quarter results and encouraging remarks from management, more analysts have become optimistic about the company. In comparison to 32 buy calls one month ago, 34 analysts now have a buy recommendation on the stock, according to data from Bloomberg. There are now two instead of four "hold" ratings, and there are now two instead of three "sell" ratings.

The street is taking the management's remarks regarding lowering net debt, using cash flow for investments, and decreasing capital expenditure in 2024 favorably since they will support the company's balance sheet.

Selling retail warehouses, expanding retail sales, refilling chemical stocks in India, a tightening of the global fuel market due to China's refining capacity constraints, and boosting gas/oil output are other reasons that might lower debt and increase the stock's value in comparison to peers. As debt declines and cash flow strengthens, these elements should raise RIL's net asset value (NAV) even though the business will be spending $17 billion a year on capital expenditures over the next three years, according to experts.

Centrum Broking believes that Reliance's development would be driven by digital and retail, supported by oil and gas. It anticipates receiving funding for future investments from the O2C (oil-to-chemicals) industry. The corporation may raise rates and enhance services with the launch of 5G. Reliance's growth is still seen as promising by Centrum Broking, which believes the company is fairly placed at 9 times FY24E (estimated) and 8 times FY25E EV/EBITDA, respectively.

Driven by O2C and retail, RIL's EBITDA in Q2 was Rs 41,000 crore, marginally above analyst projections. It made Rs 17,400 crore in net income. In H1FY24, consumer companies expanded by 20%, led by increases in digital services by 16% and retail by 33%. Thanks to the ramp-up in the MJ industry and the rise of 7% in the energy sector, consolidated EBITDA climbed by 16% YoY. Jio's net additions are improving, and increase in ARPU is anticipated in home broadband and 5G services. RIL spent Rs 78,500 crore on capital projects in H1FY24; 90% of the amount was supported by operating cash flow. As a result of capital raising, net debt decreased by Rs 8,000 crore to Rs 1.2 lakh crore.

JM Financial claims that worries about the amount of debt the corporation has are overblown. It observes a peak in RIL's net debt in FY24 and a subsequent slow decline. According to the JM Financial report, the company's pledge to maintain net debt to EBITDA below one times instills trust. Additionally, capex will be financed by internal cash flow. Over the next three to five years, Jio's increasing ARPU, continued retail growth, and omni-channel development should propel RIL to an EPS CAGR of 14–15%.

O2C EBITDA rose to Rs16300 crore, up 7% on a quarter-over-quarter basis due to better PVC and ethane cracking economics and higher refining margins in gasoline, diesel, and jet fuel. But this was somewhat countered by things like export levies, reduced Russian crude discounts, and soft spreads on polyester, PE, and PP. Analysts believe that recent adjustments to refinery margins and a pessimistic petrochemical outlook may restrict short-term O2C profits.

Due to MJ field commissioning expenses, oil and gas EBITDA was up 19% on a quarter-over-quarter basis at Rs4800 crore, little less than expected. KG gas production went from 21 to 28 mmscmd, and in the next months, it is anticipated to reach 30 mmscmd; nevertheless, starting in October 2023, the HP/HT ceiling price was dropped. Although scheduled maintenance is projected to cause a little reduction in O2C, analysts predict sustained growth in digital services. Meanwhile, the retail and energy industries are expected to profit from the Christmas quarter and MJ field ramp-up.

O2C, retail, and digital services are Reliance's primary businesses, and HSBC Global Research views them favorably as lucrative and self-sustaining. They anticipate that investments in new energy will spur development, but they need upfront cash. Even while digital and retail still have capital costs, they should fall down when 5G deployment is finished in December 2023 and retail assets could draw in new investors thanks to InvIT. O2C may not perform well because of the economy and recent capacity expansions. According to HSBC, these factors may have an immediate to medium-term effect on the stock's performance.

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