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The bullish outlook stems from Reliance Jio's potential tariff hikes, given the competitive landscape, along with slow but steady improvement in the oil-to-chemical (O2C) vertical
Shares of Mukesh Ambani-owned Reliance Industries Limited (RIL) rose nearly 1 per cent on Tuesday, hitting an intraday high of Rs 2,986.05 per share, after most brokerages reacted positively to the company's March quarter (Q4FY24) results.
The bullish outlook stems from Reliance Jio's potential tariff hikes, given the competitive landscape, along with slow but steady improvement in the oil-to-chemical (O2C) vertical.
"We raise FY25-26E earnings by 2-5 per cent each and increase target price to Rs 3,200 per share on the back of higher profitability in Jio (due to ARPUs) and roll-over to March-26 estimate.
"RIL is well-placed with steady earnings and positive free-cash flow; new energy should also commence," said analysts at Emkay Global.
In Q4FY24, Reliance Industries' bottomline dropped 1.8 per cent to Rs Rs 18,951 crore, as opposed to Rs 19,299 crore in the same quarter a year ago.
This was Reliance Industries highest-ever recorded consolidated net profit the company has ever achieved in a quarter.
Reliance Industries topline, meanwhile, rose over 11 per cent to Rs 2,40,715 crore from Rs 2,16,265 crore a year ago.
Here's what key brokerages say on RIL's Q4FY24 results:
Kotak Institutional Equities ' Add ' Target price: Rs 3,200
RIL s Q4 earnings before interest, taxes, depreciation and amortisation (Ebitda) was in line with analysts' estimate.
Meanwhile, O2C Ebitda (up 19 per cent Q-o-Q), which was 7 per cent ahead of estimates, was offset by weak retail (Ebitda down 7 per cent Q-o-Q, 8 per cent below analysts estimate).
With the first phase of 5G rollouts completed, Q4 capex of Rs 23,000 crore further fell by 23 per cent Q-oQ, the brokerage said.
Analysts further said that the refining margins have been weak recently and expect refining margins to recover, but expect a slower recovery in petchem.
Although Q4 was weak for retail, with strong area additions, analysts expect growth to pick up.
Considering these factors, Kotak Institutional Equities maintained Add with a revised fair valuation of Rs 3,200.
Motilal Oswal ' Buy ' Target Price: Rs 3,245
Segment-wise, the consumer business continues to post double-digit Ebitda growth, with both Reliance Jio and Reliance Retail likely to record 14 per cent and 25 per cent Ebitda compound annual growth rate (CAGR) over financial year 2024-2026 (FY 24-26), respectively, analysts at Motilal Oswal noted.
The growth would be driven by footprint additions, new categories in the retail sector, the focused approach to subscriber growth, and the expected tariff hikes in the telecom business.
In O2C, analysts foresee refining and petchem segments picking up from the current levels, as net capacity additions for both segments are tapering off on a Y-o-Y basis.
Moreover, FY25 would witness the full benefit of the ramped-up volumes at the MJ Field.
Overall, analysts remain positive on both the refining and petrochemical segments.
Global oil demand for calendar year 2024 (CY24) is likely to be at 103 million barrels of oil per day (bopd), up 1.2 million bopd Y-o-Y.
Gasoil cracks are anticipated to remain firm due to the strength in jet fuel demand and the limited availability of heavy crude.
While global downstream chemical markets remain well-supplied in the near term, analysts note that capacity growth is tapering off and has passed its peak for key products such as Relene (PE) and Repol (PP).
Considering these factors, Motilal Oswal reiterated Buy rating on RIL with a target price of Rs 3,245 apiece.
ICICI Securities ' Hold ' Target Price: Rs 2,810
Despite earnings growth, however, our target price of Rs 2,810 implies 5 per cent downside from here, as analysts see return ratios and free cash flow (FCF) yields remaining subdued over the next two three years and monetisation of the New Energy businesses as well as the media acquisition taking time.
Considering these factors, ICICI Securities have reiterated its Hold rating.
JM Financial ' Buy ' Target price: Rs 3,320
RIL's consolidated Q4 Ebitda was 1 per cent above analysts' estimates due to stronger-than-expected O2C Ebitda, partly offset by weaker retail Ebitda, while digital Ebitda was in line.
Additionally, strong GRM drove O2C business Ebitda, which stood at Rs 16,780 crore.
Moreover, digital Ebitda at Rs 14,640 crore was in line with estimates; average revenue per user (ARPU) remained flattish Q-o-Q but subscriber growth continued to be robust, at 10.9 million.
Capex declined sharply to Rs 23,200 crore in Q4FY24 versus Rs 30,100 crore in Q3FY24 and Rs 38,800 crore in Q2FY24, driven by moderation in 5G capex this would be positive for potential free cash flow (FCF) generation if this becomes the new sustainable capex run-rate.
Therefore, analysts reiterate Buy on RIL, with a revised target price of Rs 3,320.
Emkay ' Add ' Target price: Rs 3,200
RIL reported largely in-line earnings. Retail Ebitda was an 8 per cent miss on lower revenue, but was offset by better O2C on higher utilisation and improved refining.
Jio and Upstream were inline.
Capex run-rate fell sharply to Rs 23,200 crore Q4, though analysts believe approximately Rs 1.2 lakh crore per annum would hold going ahead from new energy & petchem.
The brokerage is positive about Jio tariff hikes, given the competitive landscape.
While Oil & Gas and Retail should remain steady, it added.
Therefore, Emkay analysts raised financial year 2025-2026 estimate (FY25-26E) earnings by 2-5 per cent each and retained Add with a target price of Rs 3,200 per share on the back of higher profitability in Jio (due to ARPUs) and roll-over to March-2026 estimate.
Antique Stock Broking ' Buy ' Target Price: Rs 3,227
Likely improvement in the petrochemical cycle in financial year 2026, the continued growth in telecom subscriber base, along with sharp improvement in ARPU on account of tariff hikes, and continued growth in retail would be the key earnings growth drivers, the brokerage said in a note.
While likely commissioning of new energy in the financial year 2025 (FY25) would set the base for the next round of capex in the segment.
Therefore, Antique Stock Broking maintained Buy rating with a revised Sum-of-the-Parts Valuation (SoTP) target price of Rs 3,227 on account of higher earnings and also as we attribute a higher multiple to the telecom business on account of several tailwinds in the sector.
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