What should investors do with RIL after earnings; buy, sell or hold?

Reliance Industries: CMP: Rs 2,508 | The stock fell over 4 percent on May 9. RIL on May 6 reported 22.5 percent year-on-year growth in its consolidated net profit to Rs 16,203 crore, which was below expectations of Rs 17,167 crore. The oil-to-telecom conglomerate's consolidated revenue from operations surged 36.8 percent year-on-year to Rs 2.1 lakh crore in line with Street's estimate. The company's board also recommended a dividend of Rs 8 per share for the financial year ended March. Goldman Sachs has kept a buy rating on Reliance Industries with a target of Rs 3,200 per share as it sees company as a unique energy transition story. Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

Reliance Industries Ltd (RIL) share price is in focus today after the company came out with March quarter earnings last week.

RIL on May 6 reported 22.5 percent year-on-year growth in its consolidated net profit to Rs 16,203 crore, which was below expectations of Rs 17,167 crore.

The oil-to-telecom conglomerate's consolidated revenue from operations surged 36.8 percent year-on-year to Rs 2.1 lakh crore in line with Street's estimate.

The company's board also recommended a dividend of Rs 8 per share for the financial year ended March.

For FY22, RIL reported record-high gross revenues of Rs 7.92 lakh crore or $104.6 billion, making it the first Indian company to achieve the $100 billion mark. It also reported record annual consolidated net profit of Rs 67,845 crore for the financial year.

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The research house has kept a buy rating on Reliance Industries with a target of Rs 3,200 per share as it sees company as a unique energy transition story.

Refining led earnings acceleration to drive consensus upgrades. EBITDA grew 6% quarter on quarter (QoQ), coming in at $4.2 billion.

Goldman Sachs expects further acceleration in earnings with expectation of 21% QoQ growth in Q1 and expects 50/21% EBITDA growth in FY23/24, CNBC-TV18 reported.

The brokerage has maintained a buy rating on the stock with a target of Rs 2,955 per share.

"O2C (oil to chemicals) was strong but retail weak. It is one of best earnings growth stories among India’s large caps," CLSA said.

CLSA raised FY23-24 EPS (earnings per share) forecast by 5-9% on higher refining margin, CNBC-TV18 reported.

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The research firm has maintained a buy rating with a target of Rs 2,950 per share.

Refining looks strong in calendar year 2022 on geopolitical developments while petro chemicals should be soft. The company could act as a safe haven in today's context despite its elevated capex.

Jefferies raised FY23 O2C EBITDA estimate by 18%, CNBC-TV18 reported.

The broking house has kept a neutral rating on the stock with a target of Rs 2,510 per share.

Jio is reflecting only 60-65% of tariff hike currently. If current refining margin sustains, RIL could add $1-1.5 billion of FCF (free cash flow) per quarter.

Key catalysts include update on timing of listing of Jio and retail in upcoming annual general meeting.

Credit Suisse increased FY23 EPS estimates by 16% to reflect current high refining margin, CNBC-TV18 reported.

The research house has kept a neutral rating with a target of Rs 2,575 per share.

It was a strong operating quarter and should get better with refining, E&P and telecom, said JPMorgan.

The O2C segment should report strong EBITDA in the first half of FY23, CNBC-TV18 reported.

Morgan Stanley remained overweight with a target of Rs 3,253 per share.

EBITDA was slightly above estimate, with telecom and refining going higher.

Key triggers are higher refining margin and lower telecom subscriber churn, CNBC-TV18 reported.

"We cut FY23/24E earnings by 9/7% to factor in higher than expected FY22 debt. Q4 benefitted from strong refining performance offset by weak downstream chemical margin (higher input prices) and E&P segment (lower volumes).

"Retail segment saw sharp improvement with 98% stores operational (Q3 97%) while Jio displayed steady performance despite SIM consolidation among inactive customers.

"RIL’s vertical growth remains impressive given 1) recovery in GRMs (gross refining margins) due to gas to oil switch (Singapore GRMs at over $18/bbl vs $8 in Q4) 2) higher gas realisation in first half at $9.9/mmbtu (second half $6.6) and 3) improving retail profitability trend as pandemic concerns ease.

"With SIM consolidation behind, we expect strong subscriber addition given the shift from 2G to 4G. All round recovery in global economic activity augurs well for all RIL’s business segments and we believe the company is well positioned to incubate new business and pursue inorganic opportunities with its liquid BS. Maintain ‘BUY’ with a price target of Rs 3,000 (Rs 3,045) earlier," the brokerage said.

"RIL is our top pick and we expect it continue outperforming broader markets (stock price up 9% in 2022 versus -7% for Sensex) as we see continued recovery in its earnings led by cyclical uptick in O2C margins, further telecom tariff hikes, high growth in retail led by market share gain and ramp-up of new revenue streams (broadband services and new commerce).

"Strong cash flows from standalone business would help fund capex for its new energy business and potential monetisation of gasification unit through induction of strategic investor to help unlock value. Further value unlocking in digital and retail (with a likely IPO for consumer business) would add value to shareholders return over coming years.

"Hence, we maintain a Buy on RIL with an unchanged SoTP-based price target of Rs 3,050. At CMP, the stock trades at 21.2x/18.1 FY23E/FY24E EPS and 10.5x/9.1x FY23E/FY24E EV/EBITDA."

"The stock should benefit from three areas: a) accelerated EBITDA growth in Retail business, which garners about 4x higher valuation multiple v/s overall business; b) Jio’s steady revenue growth from market share gains, tariff hikes and other wireline/digital avenues; and c) better refining margin that should translate into 20% EBITDA growth in the standalone business. Reiterate BUY with a target price of Rs 2,935."

At 09:17 hrs Reliance Industries was quoting at Rs 2,585.25, down Rs 35.90, or 1.37 percent on the BSE.

Disclaimer: MoneyControl is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

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