Reliance Industries Q1 Review: Oil-To-Chemicals Demand To Improve, Margins Stay A Concern, Say Analysts - BQ Prime

Reliance Industries Ltd.'s full-year growth will be aided by higher demand for its petrochemical, and oil and gas segments even as the company missed first-quarter earnings estimates, dragged by the oil-to-chemicals segment, according to analysts.

Margins, analysts said, could remain constrained as petrochemical supplies from China rise.

Voluntary production cuts by OPEC-plus countries may keep crude prices elevated, impacting demand adversely, Motilal Oswal said in a report. But there is likely to be a positive momentum in domestic demand for both polymers and polyesters as they track economic growth, it said.

RIL's consolidated net profit attributable to owners dropped 17% sequentially to Rs 16,011 crore in the quarter ended June, according to its exchange filing. That compares with the Rs 16,995.5 crore average estimate of analysts tracked by Bloomberg.

RIL Q1 FY24 Highlights (Quarter-on-Quarter)

• Revenue from operations fell 2.6% to Rs 2,10,831 crore, against the Bloomberg estimate of Rs 2,13,669 crore.

• Operating profit or earnings before interest, taxes, and depreciation, fell 0.9% to Rs 38,093 crore, as compared with the Rs 38,046 crore forecast.

• Operating margin stood at 18.1% versus 17.7% as of March.

At 10:29 a.m., shares of RIL were trading at Rs 2,503.65 apiece, down 1.38% as compared to a 0.14% advance in Nifty 50.

Of the 40 analysts tracking the company, 33 maintain a 'buy' rating, four recommend a 'hold' and three suggest to 'sell' the stock, according to Bloomberg data. The average of 12-month analyst price targets suggests a potential upside of 10%.

Here's what analysts have to say about RIL's Q1 earnings:

Morgan Stanley

• Reliance reported in line Q1FY24 earnings. The brokerage has adjusted earnings estimates and price target to reflect the de-merger of Jio Financial Services.

• Global fuel demand, recovery in chemicals and gas demand to support earnings.

• Price target reduced from Rs 3,210 to Rs 3,000 (base case scenario) derived from a sum-of-the-parts methodology to reflect Jio Financial Services. It implies a potential upside of about 20%.

• Value the petrochemical and refining businesses at target FY25 estimated EV/Ebitda multiples of 8 times and 7 times, respectively.

• E&P estimate for FY25 EV/Ebitda multiple of 4 times as gas production ramps up.

• Being an integrated refining and petrochemical player with operating assets, it's expected to trade in line with global peers.

• Although capex spending for Q1 at $4.8 billion was high, the brokerage keeps FY24 estimate at $17 billion with RIL front-loading retail/telecom capex.

• RIL is moving into a phase where monetisation and investment cycles run concurrently till 2027—a first in two decades, and evident with its own guidance to keep net debt below Ebitda.

• This multi-decade profile shift offers under-appreciated opportunities especially as the earnings cycle turns.

• Shorter monesiting cycles (2-3 years versus 5-6 years in the past) as investments in new growth areas accelerate will keep dollar earnings growth in the 13-15% CAGR growth range.

• Clean Power is seen doubling demand for the rest of the decade with an estimated net asset value accretion of around $20 billion.

Adblock test (Why?)

Reliance Industries Q1 Review: Oil-To-Chemicals Demand To Improve, Margins Stay A Concern, Say Analysts - BQ Prime
Read More