RIL shares down 1% post Q2; should you buy, hold, or sell?

Shares of Reliance Industries (RIL) dropped over 1% in opening trade on Tuesday after the oil-to-telecom conglomerate reported weak earnings in the September quarter of the current fiscal. The Mukesh Ambani-led company has reported subdued earnings, impacted by weaker performance in its core oil-to-chemicals (O2C) segment and flat growth in retail business.

Snapping two sessions losing streak, RIL shares opened lower at ₹2,718.95 against the previous closing price of ₹2,745.20 on the BSE. In the first hour of trade so far, the country’s most valued stock slipped 1.15% to ₹2,713.55, while the market capitalisation declined to ₹18.4 lakh crore.

Meanwhile, the BSE benchmark Sensex and NSE Nifty were trading flat with negative bias, led by sell-off in M&M, Tata Steel, JSW Steel, Reliance Industries, and Nestle India.

At the current level, RIL shares trade nearly 16% lower than its 52-week high of ₹3,217.90 touched on July 8, 2024. The counter has gained 22% from its 52-week low of ₹2,221.05 hit on October 26, 2023.

Reliance Industries shares have underperformed Sensex and oil and gas sector, delivering a return of nearly 19% in the last one year as compared to a 23% rise in Sensex and 62% growth in the BSE oil&gas index. On the year-to-date basis, the most valued stock gained over 6% versus 12.6% and 31.5% rise in Sensex and oil and gas index, respectively. In the past three months, the counter has seen a correction of over 13%, while it lost 6% in the past six months.

For Q2 FY25, RIL posted a consolidated profit of ₹16,563 crore, down 4.7% compared to ₹17,394 crore in the year-ago period. Consolidated revenue from operations increased marginally by 0.2% year-on-year (YoY) to ₹2.35 lakh crore, while the consolidated EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortisation) stood at ₹43,934 crore, up 2% YoY. The EBITDA margin dropped to 17% as compared to 17.5% in the previous year.

"Our performance reflects robust growth in Digital Services and Upstream business. This helped partially offset weak contribution from O2C business which was impacted by unfavourable global demand-supply dynamics," Mukesh Ambani, Chairman and MD at RIL said in an official statement.

As of September 30, 2024, RIL’s total debt was ₹3.36 lakh crore, up from ₹2.95 lakh crore at the close of Q2 FY24. The net debt remained elevated at ₹1.16 lakh crore from ₹1.12 lakh croe at the end of Q1 FY25. The management has guided to lower capex intensity by FY25 as 5G capex has been completed, while new energy and retail capex remained high.

Should you buy, hold, or sell RIL shares post Q2?

Post Q2, ICICI Securities has upgraded the stock to ‘Add’ from ‘Hold’ on correction in stock price by 14% in last 3 months. The brokerage has revised target price of ₹2,980 per share, driven by upgrades to telecom valuations. “At our revised estimates, we see consolidated EPS CAGR at a strong 15.3% over FY25– 27E, with 11.3% CAGR in EBITDA. Despite earnings growth, our SoTP-based target price of ₹2,980 implies just 9% upside from here, as we see return ratios and FCF yields remaining subdued over the next 2-3 years and monetisation of new energy businesses as well as media acquisition taking time,” it says in a note.

Nuvama has also retained ‘BUY’ with target price of ₹3,650, citing strong prospects and focus for New Energy (NE) business. “RIL is rapidly nearing its new energy (NE) vision rollout, bagging several PLIs on the way, implying aggregate incentive of $0.7/kg (18% of GH2 value chain). Pilots started at Jamnagar for various solar/BESS configurations.”

“RIL at its AGM had highlighted a potential 50%-plus addition to earnings in 5–7 years by NE business, which shall equal O2C’s profitability, and add much higher value, given clean energy,” it says in a note.

Another domestic brokerage Motilal Oswal has cut target price on RIL to ₹3,255 from ₹3,410 earlier and lowered earnings estimates for the current and next fiscal. "We cut our FY25/FY26 consolidated EBITDA estimates by 1-2% and PAT estimates by 6%/3%, as we reduce our estimates for standalone earnings by 8%, RJio earnings by 1-3% and Retail earnings by 2-10%," it says.

Global brokerage Jefferies has given a target price of ₹3,400 on the stock, saying that September quarter earnings was weak with large miss in O2C & small misses in Jio & Retail. However, the agency believes that the recent correction of 14% makes the valuations favourable.

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