About the Stock

Reliance Industries Limited (RIL) is an Indian multinational conglomerate with its headquarters in Mumbai. RIL’s wide business portfolio includes energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles. Reliance is one of India’s most lucrative enterprises, as well as the largest publicly traded company in terms of market capitalisation (Rs. 17,25,242.22 Cr) and sales. It is India’s eighth largest employer, with about 236,000 employees.

Quarterly Updates

• RIL reported a robust quarter performance with steady revenue growth across all segments (+6.9 percent YoY), with consumer business (~23 percent revenue) and O2C business (~57 percent revenue) in focus.
• Consolidated revenue in Q3FY25 grew by a steady rate of ~ 7% YoY driven by growth in consumer business and O2C. Revenue from segments such as Retail, Digital Services and O2C hiked substantially on a YoY basis (+18.4%, +19.4% & +6.02% respectively). Oil and Gas segment contracted ~5% YoY owing to decline in volumes of KG D6.
• EBITDA hiked by 7.71% YoY to Rs. 43789 Cr. with EBITDA margin improvement of ~13 bps owing to significant increase in EBITDA in the segment of Retail and Digital Services.
• EBITDA for JPL grew by 18.8% YoY to Rs. 16,585 Cr. whereas, RJIL delivered a stable EBITDA growth of 17.7% (Rs. 15, 798 Cr.). For Retail segment the EBITDA stood strong at Rs. 6,828 Cr. (+9.5% YoY, +16.7% QoQ). Oil & Gas sector saw a decline of 4.1% YoY in EBITDA at Rs. 5,565 Cr. while EBITDA margins gained 100bps YoY.
• RIL’s PAT figures witnessed a hike of 11.88% YoY (+14.15% QoQ) with PAT margins improving ~40 bps. Digital Services segment was the front runner of PAT growth with ~26% YoY, while the retail segment delivered PAT growth of ~9-10 percent YoY.

Commentary

• Due to strong demand, strategic execution, and operational efficiencies, RIL produced a successful operating quarter with growth in all major segments. Further RIL states that it witnessed strong sequential growth in earnings led by positive contribution from all key segments
• A robust festive season, higher consumer involvement, and market expansion with the opening of multiple new locations (+779 new locations) helped the retail segment achieve remarkable success. Performance was further enhanced by initiatives to increase productivity and optimize processes, especially in the grocery and fashion & leisure sectors where new formats resulted in record sales.
• By growing its 5G network (170 million customer base) and gaining around 3.3 million new subscribers) boosting the ARPU to Rs. 203 thanks to tariff hikes, Jio maintained its momentum in the telecom and digital industries. Steady revenue growth was facilitated by enhanced pricing methods, higher user engagement, and increased data usage.
• Improved refining margins, better product spread with PP and PVD deltas, and rising domestic demand for oil and petrochemical products which saw 44 percent hike in petrol sales and 23% hike in diesel sales, all contributed to the O2C (Oil to Chemicals) segment’s robust recovery.
• Due to good market circumstances such as price in gas prices to $9.74 per million BTU, the Oil & Gas segment managed to maintain stability despite occasional output hiccups with lower production of KDG6 volume which amounted for lower revenue.

Con Call Highlights

Capex plan

Compared of the Capex of Q2FY25 which stood at Rs. 34,022 Cr. (allocated towards O2C and Energy segments while Jio’s allocation declined), the Capex for Q3FY25 was around Rs. 32,000 Cr. which is well below the cash profits of Rs. 38,000 Cr. RIL further plans on investing in growth opportunities across key segments.

Digital Services Segment

Tariff hikes, digital platform expansion, and a more diverse consumer base all contributed to growth in revenue for Jio with subscriber count reaching 482.1 million, with 3.3 million new additions, while ARPU rose to Rs. 203.3 per month Vs Q2FY25 ARPU of Rs. 195.1 per month. With the full impact of the July 2024 rate hike still being felt, Jio anticipates greater ongoing ARPU growth, subscriber additions, and rising digital revenues. 

Jio’s True 5G offerings are expanding with more than 170 million Jio 5G subscribers with Jio being network of choice for 70% of new 5G device users, the service currently accounts for almost 40% of all cellular traffic, which will shortly overtake 4G.

Jio’s home internet and AirFiber attracted around 2 million new connections (~17 million total connections) with 4.5 million AirFiber homes connected, with 70% of new connections coming from rural and small towns. Jio plans to hike connections in underdeveloped areas with greater demand. Further, Jio witnessed a significant hike of nearly 280 percent YoY in government connectivity tenders and a growing market share in corporate and financial sectors, and is preferred for providing providing IoT, private cloud, and SIP-based business solutions.

Jio is also advancing AI infrastructure by developing large-scale, reasonably priced computing power. JioBrain, Jio AI Cloud, and JioCloudPC are some of the platforms that are being used to incorporate AI throughout company operations.
Jio AI Cloud provides DigiLocker integration, AI-powered content management, and 100GB of free storage. JioCloudPC eliminates the need for expensive updates by transforming a TV and set-top box into a full-fledged PC with an 8GB multi-core processor and pay-as-you-go pricing.

Retail Segment

Robust growth in the Retail Segment was mainly driven by the festive and wedding seasons with AJIO reporting sales hike (+17% YoY) and electronics sales up 12% YoY, operational efficiencies, and store expansion, with 779 new openings bringing the total to 19,100. Grocery sales hiked (+37% YoY) owing to increase in retail stores, while luxury brands expanded globally, and jewelry sales held steady despite rising gold costs. In FY25, FMCG revenue topped Rs. 8,000 Cr, with Campa accounting for 10% of the market in important states. Reliance Retail is well positioned for long-term growth, with strong momentum across segments.

Oil and Gas and O2C Segment

Despite the lower production of KDG6 (- 5.3% YoY) at 28 million standard cubic meters, RIL’s Oil and Gas segment is still the largest contributor to the Indian Gas industry with a quarter revenue of around Rs. 6370 Cr. (+2.5% QoQ), mainly due to increased CBM production on multilateral wells. With 34 of the 40 wells functional, the capacity stands at 0.35 million standard cubic meters, the perspective is to increase the drilling of multilateral wells. Even with lower production of KDG6, the prices of gas have remained higher QoQ. The actual price of KDG6 at $9.74 per MMBtu was slightly lower than the ceiling price at $10.16 per MMBtu, while CBM prices were lower than QoQ at $10.58 per MMBtu. 

O2C segment displayed robust performance despite market volatility driven by a 9% rise in volumes, strong domestic demand, and cost advantages from ethane cracking. Polymer deltas improved slightly, and fuel cracks remained healthy despite declines in gasoline and gasoil margins. With aviation fuel witnessing a 9% increase in demand, Air BP-Jio grew 51%. With O2C margins fallen 30-70% over last five years, RIL to invest in ethane sourcing, refinery off-gas cracking, and gasification. Future outlook in investment further includes a 1.5 million-ton PVC and CPVC plant and increased specialty polyester production.

Domestic fuel consumption grew 9.6%, driven by PVs and two-wheelers. Retail volumes rose with schemes like ‘Happy Hour’, and diesel demand in India grew 5% YoY. In petrochemicals, PE demand stayed stable, PP and PVC saw strong growth, but polyester margins fell 12%. Reliance focused on production and marketing optimization to improve sales and margins

Global and Indian Scenario of Gas Industry

Market conditions were dynamic, with Brent crude prices falling 11% YoY due to a stronger dollar, weak demand from China, and high non-OPEC supply. Global oil demand rose by 1.5 million barrels per day, led by Asia, with strong gasoline and jet fuel demand.

In line with the gas market outlook, prices have stayed consistent throughout the quarter, ranging from $13 to $15 per MMBtu. In spite of severe supply disruptions, this stability has been fueled by strong demand, especially in India. Outages at Australian LNG terminals and the halt of Russian gas through Ukraine have affected global supply, lowering it by about 11 million tons annually. A tighter supply situation has resulted from these disruptions, which have increased market pressure.

RIL anticipates gas prices to remain firm in the short run as delays in LNG projects in Africa and Canada prevail which would further reduce oil supply by around 5 million tons making it difficult to meet global demand. Furthermore, Europe’s gas storage levels are far lower than they were last year (84%), at 68.8% compared to the five-year average of 74.8%. This drop in storage levels raises the possibility that Europe would need to import more gas, which would raise demand and keep prices high for some time to come.

With a 10% increase in consumption, the Indian gas market remained robust in 2024, propelled by the power, petrochemical, and city gas distribution industries. Despite high prices, LNG imports increased to 25.5 million tons, indicating an increasing reliance on natural gas. A positive price outlook was supported by the increase in the domestic gas ceiling price to $10.16 per MMBtu. India’s gas industry is well-positioned for long-term expansion due to robust imports and growing demand.

Valuations

• In present times, the stock of RIL is trading at multiple of 24.9x 51.1 EPS at the CMP of Rs. 1,737. In book terms, trading 2.12x than its book value of Rs. 606  As of today, the ROCE and ROE of the company is at 9.61 percent and 9.25 percent, respectively.

Reliance Industries Ltd. announced an equity dividend of ₹10.00 per share throughout the last 12 months. The dividend yield of Reliance Industries Ltd. is 0.79% at the current share price of ₹1,270.30. The dividend yield, adjusted for bonuses and splits, is 0.39%.

Investment Rationale

• RIL secured government incentives to produce EV batteries (advanced chemistry cell (ACC) batteries) with RIL receiving Rs 36.2 billion ($431 million) in incentives through the government’s production-linked incentive (PLI) scheme. Further in 2021, RIL had announced to develop 4 giga factories which will manufacture and fully integrate all the critical components of the new energy ecosystem for which the company would investment ~Rs. 75,000 Cr in the next 3 years. This commitment has been fostered as its quarterly capex over the last few quarters has been significantly diverted towards RIL’s new energy businesses.
• RIL intends to commission its first solar gigafactory in FY25 as it pursues a green path to attain net zero carbon emissions from operations by 2035. In the latest annual report , the company stated that it intends to commission the first train of 20GW solar PV (photovoltaic) manufacture by the end of the fiscal year 2024-25, followed by a phased increase to 20GW by 2026. It intends to create a 50 GWh cell-to-pack manufacturing facility in FY27, with a goal of establishing 100 GW renewable energy capacity by 2030.
• RIL’s Retail arm is expected to witness a boost as RIL plans to bring the Chinese fast-fashion brand Shein back to the Indian market by way of launching an independent app in the next few months.
• Reliance reported record earnings, with consumer businesses contributing 52% of segment EBITDA. Energy demand remains strong in India, supported by economic activity and fuel recovery in APAC. Retail performance improved with festive demand and operational efficiencies. Jio benefited from tariff hikes and strong subscriber growth. This quarter reinforced Reliance’s long-term growth trajectory across all business segments. RIL stands on robust financials and a clear vision to expand its key business segments by way investing in Capex plan on a QoQ basis from Rs. 34,022 Cr. in Q2FY25 Vs Rs. 32,000 Cr. in Q3FY25.