RIL shares trade flat as Q3 profit drops; brokerages see up to 31% upside

Shares of Reliance Industries (RIL) moved in a tight range in subdued trading on Monday after billionaire Mukesh Ambani-led conglomerate released its December quarter results on Friday after market close. The oil-to-chemical major has reported lower than expected profit in Q3FY23, but it posted decent growth in revenue during the period under review.

Reacting to Q3 earnings, RIL shares opened marginally higher at ₹2,450, against the previous closing price of ₹2,442.70 on the BSE. In the first three hours of trade so far, the Sensex heavyweight gained as much as 0.95% to hit an intraday high of ₹2,466, while it dropped 1.4% from day’s high to touch a low of ₹2,431.15. On the volume front, 1.24 lakh shares changed hands over the counter, while the market capitalisation (m-cap) slipped to ₹16.46 lakh crore. In comparison, the BSE benchmark Sensex was trading 285 points higher at 60,906 levels.

RIL shares currently trade 15.5% lower than its 52-week high of ₹2,855 touched on April 29, 2022. The stock hits its 52-week low of ₹2,181 on March 8, 2022. The country’s most valued firm has underperformed the BSE Sensex and delivered a muted return of 2% in the last one year, while it gained 0.5% in the past six months. The share price has fallen nearly 3% in a month and 1% in a week. In contrast, the 30-share Sensex climbed 6% in a year, 9% in six months, 1.75% in a month, and 0.7% in the past one week.

For the three-month ended December 31, 2022, RIL posted a consolidated profit after tax (PAT) of ₹15,792 crore, down 14.9% year-on-year (YoY) as compared to ₹18,549 crore in the same period last year. However, consolidated revenue from operations rose 13.3% to ₹220,592 crore versus ₹191,271 crore in the corresponding period last year, led by continued growth in consumer businesses, higher realisation in O2C business along with nearly 2x growth in oil & gas segment. Earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter stood at ₹38,460 crore, up 13.5% YoY, led by consumer and upstream businesses.

Analysts on RIL Q3 earnings:

J M Financial               Buy                                               Target price: ₹2,950

The brokerage said that RIL’s consolidated 3QFY23 EBITDA was higher due to higher O2C EBITDA, while consolidated PAT (after minority interest) also topped estimates. The agency has reiterated “Buy” rating on the stock with an unchanged target price of ₹2,950, a potential upside of 20.8% from the current market price, citing RIL’s industry leading capabilities across businesses and expectation of robust 14-16% EPS CAGR over the next 3-5 years.

ICICI Direct                     Buy                                               Target price: ₹3,050

The domestic brokerage said that RIL’s results were better than estimates on the operational profitability front. However, PAT was lower than estimates due to higher-than-expected depreciation and interest. The agency has given a target price of ₹3,050, up 25% from the current price with a “Buy” rating. ICICI in its report said that increment value accretion from the ‘digital ecosystem’, rise in GRMs, and steady FCF generation in the retail segment would be key triggers for future price performance. “RIL’s consumer business will be the growth driver, going ahead. Tariff hikes undertaken by Jio would be a key monitorable. O2C segment is likely to improve as higher middle distillate cracks would help strengthen GRMs along with a rebound in petchem demand,” it said in a note.

Jefferies                         Buy                                               Target price: ₹3,110

Global brokerage Jefferies has also retained “Buy” rating with a price target of ₹3,110, citing that the current stock price imputes little value to green energy. “Retail revenue growth missed est, but strong store additions and improving footfalls paint a strong growth outlook in FY24E. Jio's sub adds were a tad lower, but rapid 5G roll-out should drive strong growth. O2C benefited from strong diesel spreads and cheap crude blending; Chinese demand recovery can lead to earnings upside in FY24. Capex remains elevated,” it said.

Edelweiss                       Buy                                               Target price: ₹3,205

The foreign brokerage house has recommended ‘BUY/SO’ with a target price of ₹3,205, a potential upside of 31% from the current price, saying that Reliance’s new energy rollout may unleash its next leg of growth, besides aiding conventional business (New energy upgrade). “We expect GRMs to stay lofty (USD5-6/bbl) on strong middle distillate cracks, albeit below CY23. Windfall tax will remain a near-term earnings drag. Windfall tax on HSD/ATF exports shall drag earnings in the near-term,” it said.

Emkay Global                 Buy                                               Target price: ₹2,750

The agency has retained “Buy” on the stock with a target price of ₹2,750, citing reasonable valuations. “We expect Reliance Industries' earnings to improve as petchem recovers (from China), MJ1 commissions, and Jio is likely to see tariff hikes. However, FCF would be constrained by high capex. Monetisation of verticals and development of new energy projects are key triggers.”