RIL Q3 earnings: What should investors do after a decent third quarter?

During Q3FY23, RIL garnered a consolidated net profit of ₹15,792 crore declining by 14.8% from ₹18,549 crore a year ago same period. However, revenue from operations climbed by 15% to ₹2.20 lakh crore in Q3 of the current fiscal versus ₹1.91 lakh crore in the same period last year. EBITDA came in at ₹38,460 crore, up 13.5% on-year.

Also, the company announced its plan to raise funds to the tune of ₹20,000 crore through the issuance of non-convertible debentures in one or more tranches on a private placement basis.

Mukesh D. Ambani, Chairman, and Managing Director said, “Our teams across businesses have done an excellent job in delivering strong operating performance through a challenging environment. All segments contributed to the robust growth in consolidated EBITDA on Y-o-Y basis.”

On segment-wise performance, Ambai said, “in O2C business, middle distillate product fundamentals remain strong with firm demand, constrained supply, and high natural gas prices in Europe. Downstream chemical products witnessed margin pressure with excess supply and relatively weak regional demand. Our focus remains on operating safely and reliably producing vital fuel and materials for consumers.”

He further highlighted that Jio delivered record revenues and EBITDA driven by strong momentum in customer growth and data consumption. While retail business had another quarter of strong progress with more Indians choosing to shop at Reliance Retail stores.

In Q3FY23, RIL recorded a 32.6% YoY rise in depreciation to ₹10,187 crore due to an expanded asset base across all the businesses and higher network utilization in the Digital Services business. Also, finance costs climbed 36.4% YoY to ₹ 5,201 crore ($ 629 million) due to an increase in interest rates and loan balances.

As of December 31, 2022, the company’s outstanding debt stood at ₹303,530 crore ($ 36.7 billion), while cash and cash equivalents were at ₹193,282 crore ($ 23.4 billion). RIL’s net debt is lower than annualized EBITDA.

RIL announced its Q3 results post-market trading hours on Friday. Before the Q3, the stock ended at ₹2,442.70 apiece down by 1.15% on BSE. Investors will react to the Q3 earnings from Monday next week.

What should investors know? 

After RIL’s Q3 report card, Abhijeet Bora, DVP, Research at Sharekhan by BNP Paribas said, “Reliance Industries Limited’s (RIL) Q3FY23 consolidated EBITDA at Rs35,247 crore (up 18.7% y-o-y; up 12.9% q-o-q) was broadly in-line with our estimate of Rs34,930 crore as strong performance from retail/Jio was largely offset by a miss in standalone EBITDA. Retail EBITDA grew by 9% q-o-q to Rs4,657 crore led margin improvement of 32 bps q-o-q to 7.7% (above estimate of 7.4%) supported by favourable mix and operating leverage offsetting muted revenue growth of 4.2% q-o-q to Rs60,096 crore.”

In regards to RIL’s telecom subsidiary Reliance Jio’s performance, Bora said, “Jio performance was decent with EBITDA of Rs12,519 crore (up 4.2% q-o-q and broadly in-line) with net subscriber addition of 5.3 mn q-o-q and slight 1% q-o-q improvement in ARPU of Rs178 (below estimate of Rs179). Jio EBITDA was strong at 50.3%, up 80 bps q-o-q.”

Bora further said, “Although standalone EBITDA grew strongly by 25% q-o-q to Rs15034 crore but was below our estimate due to weak margin for petchem and light distillate petroleum product cracks along with SAED impact of Rs1,898 crore in Q3FY23. The consolidated PAT at Rs15,792 crore (up 15.6% q-o-q) was 9% below our estimate due to higher depreciation/interest cost and tax rate of 23%.”

Meanwhile, Prabhudas Lilladher in its first cut note stated that the earnings beat lead by higher O2C realizations and 2x growth in the O&G segment.

The brokerage added, “RIL reported Q3 results with standalone EBIDTA & PAT of Rs150.3 billion (+25.4%Q/Q; PLe Rs142 billion) and Rs83.7bn (+21.1%Q/Q; PLe Rs94.3 billion) respectively. Higher finance and depreciation charges drag PAT. O2C EBIDTA was at Rs121.1 billion  (+19.2%Q/Q). Gas EBIDTA was at Rs38.0 billion (+20.3%Q/Q). The gas realization was at $11.3./mmbtu vs $9.86 in Q3 while volume was at 18.8mmscmd.”

On RIL’s valuation, Sharekhan’s analyst has given a Buy rating. Also, Prabhudas Lilladher reiterated ‘Buy’ on RIL with a target price of ₹2,894.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.