Reliance Industries' (RIL) September quarter results (Q2FY22) are broadly in line with analysts' estimates, and have even outperformed on some parameters. The company’s consolidated EBITDA (earnings before interest, tax, depreciation and amortization) increased by 11 percent vis-à-vis the June quarter (Q1FY22) to Rs 26,020 crore. This represents a 37 percent year-on-year (YoY) EBITDA growth.
Analysts from Jefferies India Pvt. Ltd said in a report on October 22, “RIL's Q2 EBITDA was in line with Jefferies estimates (JEFe) on beat in Retail, in line O2C and miss in Jio.” O2C refers to RIL’s oil-to-chemical segments.
The broker further added, “EBITDA was up 11 percent quarter-on-quarter with Jio 1 percent below JEFe, Reliance Retail (RR) 6 percent ahead of JEFe and O2C in line with JEFe.”
With the restrictions easing after the second covid-19 wave, the retail business saw a strong recovery. RIL’s Q2 retail revenues have surpassed pre-pandemic levels. Core retail revenue growth stood at 16 percent YoY. The business saw a meaningful improvement in store operating hours to 89 percent in September versus 38 percent in June.
Footfalls have recovered to 78 percent of pre-pandemic levels compared to 46 percent in Q1. The company saw strong growth in fashion & lifestyle with record quarterly sales in apparel & footwear category. New stores added in Q2 stood at 813, which is far higher than 123 stores added in Q1.
On the other hand, Reliance Jio’s performance was a tad underwhelming. The firm saw a churn of low-end subscribers owing to the pandemic’s impact, driving a net decline of 11.1 million in customer base in Q2. “A repeat of Jio's Q2 subscriber performance in Q3 will definitely dampen hopes of a tariff hike over the next few quarters.
For now, we will closely watch the JioPhone Next launch and its impact on Jio's net subscriber additions,” said Jefferies’ analysts in another report. To an extent, better ARPU (average revenue per user) compensated for the subscriber performance. In Q2, ARPU stood at Rs 143.6 per subscriber per month, representing a 3.7 percent growth over previous quarter.
Centrum Broking Ltd analysts said in their first cut note, “Retail and Telecom now forms approx. 48 percent of consolidated EBITDA versus around 32/40 percent in FY20/21. With the continued reopening across the country from June driving a strong return to normalcy H2FY22 will see much stronger numbers from both these segments, in our opinion.”
Meanwhile, RIL’s O2C business performance was decent last quarter. Revenues grew 58 percent YoY mainly on account of better realizations driven by the increase in oil prices and higher volumes. O2C EBITDA increased by around 44 percent year-on-year and 4 percent sequentially.
Overall, RIL’s profit after tax (PAT) in Q2 increased by 46 percent YoY and 12 percent quarter-on-quarter. Centrum Broking’s analysts said, “RIL adjusted consolidated EBITDA/ PAT at Rs 26000 crore/ Rs 15500 crore, beat Centrum’s estimated EBITDA/ PAT of Rs24800 crore/ 14600 crore as retail revived strongly with higher margins (retail EBIT +66 percent quarter-on-quarter).”
Ahead of the results announcement on Friday, the RIL stock closed marginally higher at Rs 2,627.40 per share on the National Stock Exchange. Some analysts expect the growth outlook to be strong. JM Financial Institutional Securities Ltd expects a strong free cash flow generation phase with major capex completed and strong 17-18 percent earnings per share CAGR likely over the next three-five years. CAGR is the compound annual growth rate.
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