Reliance Industries Q3 Insights - Buy Now or Tactically Wait

Reliance Industries Ltd (RIL) exhibited impressive results in the December quarter, benefitting from favourable market conditions and strong consumer demand, particularly in its retail and telecom divisions. Meanwhile, its traditional segments, including oil and gas and the oil-to-chemical operations, remained stable in spite of scheduled maintenance and challenging economic circumstances. Here's an in-depth look at the company's financial performance.

Q3 FY24 Highlights: Reliance Industries on a Steady Ascent

During the quarter, RIL experienced a notable 17% year-on-year (YoY) increase in consolidated operating profits, amounting to Rs 44,678 crore. The net profit also saw a 10% rise, reaching Rs 19,488 crore. Consolidated revenue stood at Rs 2.32 lakh crore, marking a 3.6% growth compared to the same period last year, bolstered by ongoing expansion in consumer-oriented sectors.

Let’s break down the performance by sector.

Oil & Gas Sector: Sustained Growth Trajectory

RIL's Oil & Gas sector experienced a massive 50% revenue growth to Rs 6,719 crore in Q3 FY24. This growth was primarily driven by a substantial 68% increase in volume, despite some downward pressure on KGD6 realizations. The EBITDA growth paralleled the revenue growth, benefiting from stable margins.

O2C Business: Adapting to Global Trends

The Oil to Chemical (O2C) segment saw a slight 2% dip in revenues YoY, influenced by lower price realizations as Brent crude prices fell by approximately 5%. However, EBITDA saw a 1% improvement over the previous year, thanks to higher gasoline crack and strategic feedstock sourcing.

While the international market for polymers faced challenges, leading to a decline in polymer margins due to subdued demand, the domestic market told a different story. Here, demand for polymers rose by 10% over last year, driven by strong consumption in sectors such as agriculture, infrastructure, and government projects.

Reliance Retail: Fastest Growing Segment

Reliance Retail emerged as the top performer in Q3 FY24, driven by double-digit growth across various operational metrics. The segment witnessed around a 20% growth in store transactions, fuelled by increased footfalls and a growing customer base. Its financial performance was further enhanced by effective operating leverage and sustained cost management efforts, leading to a 40 basis points improvement in EBITDA margins. However, the net margin increase was slightly more modest at 30 basis points, attributed to higher depreciation and increased tax expenses.

The grocery sector of Reliance Retail achieved a remarkable 41% YoY growth. Additionally, the consumer brands (FMCG) segment saw a significant revenue increase, approximately tripling due to the swift expansion of its distribution network. The digital and new commerce ventures like Jio Mart and Ajio also saw steady growth, maintaining about 19% contribution to the overall business.

Jio Platforms: Continuing Dominance

Jio Platforms continued its strong performance, marking sequential growth and significant YoY improvement. The firm recorded a 11.6% YoY growth in net profit to Rs 5,445 crore, while revenue was at a record high of Rs 32,510 crore. This was largely due to acquiring 38 million new subscribers, increased data usage fuelled by 5G adoption, and a 2% rise in Average Revenue Per User (ARPU).

Further bolstering its performance, Jio saw a substantial 31% increase in data usage. This uptick was propelled by the widespread adoption of 5G and the expansion of Fiber-to-the-Home (FTTH) services, leading to a consistent data traffic flow that surpassed 3.5 Exabytes during the third quarter of FY24.

RIL’s growth trajectory is primarily fuelled by its strategic emphasis on enhancing 5G services, having acquired the most extensive spectrum in this arena. This investment is paying off, with Jio now covering over 85% of India's total 5G capacity. In the feature phone market, the JioBharat phone has secured a substantial 45% market share in the below Rs 1,000 category.

Investment Perspective on Reliance Industries

Shares of RIL have shown a remarkable increase of over 20% in the last three months, outperforming the Nifty 50, which delivered a 11% return. Notably, Liquide had recommended this stock on December 29, 2023, anticipating a potential upside of 20%.

Our optimistic outlook for RIL remains intact post their impressive December quarter results. Beyond retail and telecom, the oil-to-telecom conglomerate is making strides in renewable and clean energy, marking a new phase of growth. The company is in the process of establishing facilities for PV modules, storage batteries, and green hydrogen through Reliance New Energy Ltd, aiming to launch a new energy giga complex in the second half of 2024.

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