Assessing RIL’s Q1 Results; Buy, Hold or Sell?
Should you invest in RIL despite muted results in the June quarter? Analysis of Q1 results and future projections
Shares of Reliance Industries Ltd (RIL) fell over 2% to hit an intraday low of Rs 2,469.30 on the NSE in early morning trade on Monday, July 24, as the street factored in the company’s first-quarter results.
Unfolding the Q1 Results: A Mixed Bag
RIL's performance in Q1 FY24 was a mixed bag. The oil-to-telecom conglomerate's results were primarily influenced by softer performance in the oil-to-chemicals (O2C) business, mainly due to reduced crude oil prices and lower downstream product price realisation. However, RIL's retail arm, Reliance Retail, showcased a strong performance and the telecom unit, Reliance Jio Infocomm, also delivered satisfactory results.
The consolidated net profit for the quarter slipped to Rs 18,182 crore, marking a decrease of 6.8% YoY, while the revenue came in at Rs 2,14,644 crore, lower by 4.8% YoY.
Despite the setbacks in the O2C business, EBITDA rose to Rs 41,982 crore, up 5.1% YoY, thanks to a robust contribution from consumer and upstream businesses. Let's take a closer look at the EBITDA, breaking it down by segment.
Ratings by Brokerage Firms
Post Q1 results announcement, brokerage firms display varied opinions on the stock. Here's a summary of their revised ratings and target price adjustments.
RIL demerges Financial arm
An interesting move in RIL's corporate strategy is the demerger of its financial entity, Jio Financial Services (JFS). Both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) conducted a one-hour special session last week to determine the price of JFS. It's currently valued at ~$20 billion and is anticipated to be listed on the bourses within the next 2-3 months at a much higher-than-expected Rs 261.85/share (Read the full story here - https://blog.liquide.life/jio-financial-services-spin-off/).
Conclusion
Despite the underperformance of the O2C segment in Q1, RIL still managed to maintain EBITDA growth due to solid performances in the upstream, retail, and digital services segments. The new energy business is likely to open up further opportunities for growth, while improvements in RJio and retail are expected to drive RIL's performance in the future.
Consequently, we see the potential for continued earnings momentum in FY24, primarily supported by retail, upstream, and RJio. Moreover, strong cash flows, robust balance sheet and superior ratings help growth capex. Keeping in view these factors, we believe that RIL would be a sound inclusion in your long-term portfolio. Therefore, if you're a current shareholder, holding onto or even increasing your RIL holdings may be a prudent move.
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