Maintain ADD on Reliance Industries - Continues to show promise - HDFC Securities

Mr. Jay Gandhi, Institutional Research Analyst, HDFC Securities and Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities

Our ADD rating on RIL with a price target of INR 2,280 /sh is premised on (1) recovery in the O2C businesses; (2) continued EBITDA growth in the digital business, driven by improvement in ARPU, subscriber addition, and new revenue streams; and (3) potential for further value unlocking in the digital and retail businesses.

RIL reported standalone revenue/EBITDA of INR 861/115bn, up 82/61% YoY and up 7/12% QoQ (18/15% above our estimates) in Q1. Standalone APAT stood at INR 86bn, -8/+13% YoY/QoQ (HSIE est: INR 58bn).

Standalone oil to chemicals (O2C) segment: Revenue grew 4% QoQ to INR 928bn, on account of higher price realisation across product portfolios. Higher realisation was primarily led by robust global fuel demand and supply management by the OPEC plus countries. EBITDA for Q1 improved by 6% QoQ to INR 119bn, due to improvement in transportation fuels cracks and higher delta for integrated polyester chain, offset by a negative delta for polymers. Crude throughput improved 10/2% YoY/QoQ.

Oil & gas: Revenue grew 97% QoQ to INR 10bn, primarily due to ramp-up of production from R-Cluster and start of production from the Satellite Cluster in KG D6 block. The combined production from the two fields was >18.0mmscmd. EBITDA improved 98% QoQ to INR 7bn, supported by margin expansion, improved production and improved price realisation for CBM and US-shale.

RJio: Revenue improved by 10/4% YoY/QoQ to INR 190bn due to subscriber traction in connectivity platform. ARPU remains stable at INR 138.4, while the gross/net subscriber addition was ~27/14mn.

Reliance Retail (RR): Net revenue grew 19% YoY to INR 335.6bn (HSIE: INR346.7bn). The core retail revenue grew 52% YoY to INR 185.6bn (HSIE: INR189.9bn). Grocery (incl. JioMART)/CE/F&L are estimated to have clocked 23/80/200/18% YoY resp. Adj. EBITDAM expanded 38bp YoY to 4.1% (in-line)

Valuation: We use EV/EBITDA to value downstream at March-23E EV/e, Retail on peer benchmarked EV/e and E&P and Jio on DCF. The stock is currently trading at 10.4x March-23E EV/EBITDA and 20.8x March-23E EPS. Maintain ADD.

Shares of RELIANCE INDUSTRIES LTD. was last trading in BSE at Rs. 2054.3 as compared to the previous close of Rs. 2077.7. The total number of shares traded during the day was 271432 in over 28303 trades.

The stock hit an intraday high of Rs. 2083.5 and intraday low of 2041.2. The net turnover during the day was Rs. 559506080.

Source : Equity Bulls

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