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Q3 Earnings

RIL performance in third quarter supported by performance of consumer businesses
Business, Equities, Market News, Markets - January 10, 2025

Reliance Industries Q2: Telecom and Retail Sectors Fuel Strong Growth Overview

Reliance Industries Q2: Telecom and Retail Sectors Fuel Strong Growth

Overview
Mukesh Ambani, a billionaire and India’s richest person, leads Reliance Industries, the country’s largest firm by market capitalization. However, RIL is not the only company led by Ambani that is listed on the stock exchange. Reliance Industrial Infrastructure Limited, a RIL-promoted firm, has declared its quarterly earnings for the October-December 2024 period.

Price History of RIIL
On Wednesday, shares of the Reliance Industries-backed company closed at Rs 1113 per on the BSE, down 2%. RIIL, with a market capitalization of Rs 1,680.63 crore, is a component of the S&P Smallcap Index. Reliance Industrial Infrastructure shares have fallen 20% in the last six months and 17% over the last year.
According to BSE statistics, the Reliance stock has increased by 22 percent in the last two years and 29.53 percent in the last three years and consequently, the shares of RIIL have surged by 142& in the last 5 years. Meanwhile, Ambani-led Reliance Industries is a promoter in the company, with 68,60,064 shares representing a 45.43 percent ownership.

Bernstein Report
Reliance Industries Limited will experience a recovery cycle following a bad year in 2024, according to Bernstein analysis. According to this analysis, RIL’s near-term growth drivers will include telecom, retail, and refining. In 2025, the recovery will be spearheaded by a 12% increase in Jio’s Average Revenue Per User (ARPU) without rate increases, as well as 4-5% user growth. Retail operations are also expected to improve, with double-digit EBITDA growth, providing strength to the RIL.

The research notes that the company’s current valuation of 10.1x projected EV/EBITDA is 17% lower than its three-year average. With earnings likely to climb by 19% or higher in FY26, Bernstein has upped its target price for RIL to Rs 1,520, representing a 25% upside.
According to the analysis, Reliance Jio would be a primary driver of RIL’s recovery, with revenue growth forecast at a CAGR of 17% over the next three years.

By FY26, ARPU is forecast to increase by more than 14%, and Jio’s subscriber base is expected to reach 500 million, resulting in a 48% revenue market share.
According to the study, Jio’s lower capital investment is further bolstering its profitability, which benefits RIL. According to the research, RIL’s retail business is expected to rebound from the setbacks suffered last year following the shop rationalisation. It expects a return to 15% growth by FY26, aided by normalized capital spending and higher revenue per square foot.

According to the research, the refining business, which was under pressure from dropping GRMs in FY24, has begun to reverse its trajectory. GRMs are predicted to rise by 5.4% year on year in FY26, helped by a weaker Indian rupee.
The corporation will gain from its new investments in the energy sector, which include solar and storage capacity. RIL intends to use 20 GW of panel production for internal consumption and manufacture green H2 in 2025, with a goal of reaching 50 Wh of cell-to-pack battery manufacturing by 2027.The Reliance gigacomplex will be the largest end-to-end renewable energy manufacturing facility.

According to the study, Reliance plans to create a battery gigafactory by 2026 and to accelerate sodium iron technology to a megawatt level by 2025. RIL inked its first 25-year PPA for 128MW and an MOU with the Maharashtra government for 100kTPA GH2 production (an investment of USD1.8 billion), which will help the business in public markets, according to the report.

Bernstein values RIL using a sum-of-the-parts approach, taking into account growth in its core segments. Jio’s telecom section is valued at 12x projected EV/EBITDA, while the retail segment is evaluated based on core and non-core operations. Refining and petrochemical segments are valued at 7 times FY26 EV/EBITDA. Bernstein emphasized RIL’s potential to generate substantial free cash flow and offer solid returns for investors, citing a steady-state EBITDA of USD 22 billion expected for FY25-27.

Q3 Results Date
The Ambani-led firm’s Board of Directors will meet next week on January 15, 2025, to accept un-audited standalone and consolidated financial reports for the quarter/nine months ended December 31, 2024. RIIL said last month that the Trading Window closing period will begin on January 1, 2025 and expire 48 hours after the Company’s financial statements for the third quarter ended December 31, 2024 become Generally Available Information.

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Q3 Preview: Top-Line Growth Slows for 7th Straight Quarter

Q3 Preview: Top-Line Growth Slows for 7th Straight Quarter

In the December quarter, many brokerages predicted continued slow growth rate for companies. Only a few sectors are exceptions to this scenario and are expected to be recording strong earnings. According to the brokerages, the top-line growth for companies listed on exchanges are expected to remain muted for the seventh consecutive quarter. It is also predicted that the year-on-year margins for firms will face pressure leading to sub-10 percent of profit growth in the third consecutive quarter.

Expected Sector-wise growth
Poor profits are expected to be recorded by sectors such as automobiles, construction materials, banks, consumer staples, and oil with a growth only in single-digit. While sectors such as pharmaceuticals, telecommunications and real estate are anticipated to gain strong profit-after-tax (PAT) growth.

Announcement of Earnings report
In this ongoing earning season, Tata Consultancy Services, a leading global software services company is about to announce its earnings report on 9th January 2025. While, the firm Avenue Supermarts, owner of supermarket chain D-mart, is going to announce its earnings report on 11th January 2025.

Reasons for subdued top-lined growth
The sectors such as automobile and components sector are facing issues because of occurrence of margin compression leading to lower profit margins. According to the brokerages, margin compression challenge is observed in this sector due to unfavorable product mix and higher discounts. The weak loan growth and also rising provisions for NPAs are expected to impact the Banking sector.

The weak realisations in the construction materials sector is probably going to affect profit margins for the sector. According to a CRISIL report, cement manufacturers’ profitability is expected to hurt in the financial year 2025 due to lower realisation and poor pricing power. There are a number of reasons for the weak realisation in the cement industry such as base effect, shortage of laborers during general elections period, fall in construction activity the initial half of the year. The prices are expected to fall around 5 to 6 percent due to low demand growth and also increasing competition. This decline in realisation is due to weak pricing power and poor demand, despite inputs costs are anticipated to remain in control.

The slowing urban demand is expected to adversely affect the consumer staples sector. The sectors such as metals, mining, oil, gas and consumable fuels are predicted to report poor net income growth in single-digit.

Sectors projected to have strong growth
The sectors such as pharmaceuticals, real estate, capital goods, diversified financials and telecommunications are projected to have strong year-on-year net income growth. The stable demand will possibly benefit the capital goods sector and higher average per user (ARPU) will support robust growth in the telecommunications secto. While, the pharmaceuticals sector is expected to record strong growth due to benefits from stable pricing of US generics and also growth observed in other markets in the world. The real estate is benefitted from improvement in launch activities such as the luxury housing boom, increased land transactions and new launches.

Projections
According to Kotak Institutional Equities, the net profits for third quarter of financial year 2025 is expected to increase by 7.2 percent YoY for the BSE-30 index and the Nifty-50 index is expected to surge by 9 percent YoY and 2.2 perent QoQ. On the other hand, Motilal Oswal Securities predicts an increase of 6 percent YoY growth in earnings for both MOFSL Universe and Nifty-50. Nuvama, a brokerage firm, expected top-line growth of 8 percent YoY in the third quarter of financial year 2025 for its coverage universe (OMCs not included) compared to 6 percent of growth in second quarter of financial year 2025. These projections indicate the subdued top-line growth of 10 percent in the seventh consecutive quarter.

Also, the Nuvma’s coverage universe (commodities and BFSI not included) is expected to have stable EBITDA margin growth YoY compared to its significant expansion in the financial year 2025. It will certainly influence PAT growth. The brokerage firm expects 9 percent of PAT growth compared to 6 percent of PAT growth in the second quarter of the financial year 2025. This growth is weak compared to more than 20 percent growth in the financial year 2025. The profits on a year-on-year basis is estimated to be weak for commodities, consumer goods, and pharmaceuticals. On the other hand, it will be a robust growth for the industrials, banks and the chemicals sector.

According to brokerage firms, the EBITDA margins will remain flat on an year-on-year basis at 17.7 percent for listed firms. This is due to strong performance in the healthcare and telecom setcor and also due to weak performance in commodities and cement industry which balances it out.

Motilal Oswal Securities predicts moderate earnings growth, mainly influenced by the BFSI sector and also positive support from healthcare, real estate, capital goods and technology sector. According to it, the earnings for PSU Banks, NBFC-lending, and Private banks are estimated to increase by 13 percent, 8 percent and 2 percent on an year-on-year basis, respectively. The expected growth for PSU and private are actually indicating lowest earnings growth since the last 10 and 13 quarters, respectively. While non-lending NBFCs who are capital market players are estimated to record a 39 percent year-on year earnings. This is mainly driven by exchanges and brokers.

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