Reliance Industries (RELIANCE): Posts Robust Q2 FY2023 Driven by Diversified Earnings Streams Despite Energy Markets Headwinds

Reliance Industries Ltd (NSE: RELIANCE) reported mixed financial results for Q2 FY2023 (ended September 30, 2022). Revenue surpassed expectations, while earnings disappointed.

In anticipation of mixed results, investors seem cautious about the company, reflecting a more than 1% fall in shares at Friday’s close, prior to the earnings release.

Revenues Up 32% YoY, Profit Remains Almost Stable

On a consolidated basis, RIL recorded gross revenues of Rs 2,53,497 crore, up 32.4% YoY riding on broad-based growth almost in all verticals. Revenues from operations grew 33.7% YoY to Rs 2,32,863 crore.

Net profit stood at Rs 15,512 crore, up marginally on a YoY basis. Results were impacted by subdued O2C business. Earnings per share (EPS) were Rs 20.20, down 3.3% from the prior-year quarter.

EBITDA including certain charges came in at Rs 34,663 crore, up 14.5% YoY riding on consumer businesses and upstream.

Jio Platforms Limited recorded revenues of Rs 24,275 crore, up 22.7% YoY. As of September 30, 2022, the total subscriber base came in at 427.6 million.

Segment Performance

On a segment basis, almost all segments experienced growth.

Digital Services: The segment recorded revenue of Rs 29,558 crore in the quarter, up 21% YoY. EBITDA stood at Rs 12,291 crore, up 29%. ARPU came in at Rs 177.2 driven by an improved subscriber mix.

Retail: Revenues increased 43% YoY to Rs 64,936 crore. EBITDA was Rs 4,414 crore, up 51%. With the addition of 795 new stores in Q2, the total store count crossed the 16,000 mark.

O2C: Revenue came in at Rs 159,671 crore, up 33% YoY. EBITDA was Rs 11,968 crore, down 6%.

Oil & Gas: This segment experienced a growth of 134% YoY in revenues to Rs 3,853 crore. EBITDA tripled to Rs 3,171 crore in the quarter on a year-over-year basis.

Margin & Expenses

Total expenses stood at Rs 215,923 crore, up 35.7% YoY. The company depicted decent margins with net and operating margins at 6.1% and 8.4%, respectively, in Q2 FY2023.

Balance Sheet Position

As of September 30, 2022, total assets stood at Rs 16,259 billion compared to Rs 14,997 billion as of March 31, 2022. Cash and cash equivalents were Rs 48,258 crore, up 33.4% from the March quarter. The debt-equity ratio was 0.37, up from 0.34 in the prior-year quarter. Net Debt stood at Rs 93,253 crore.

Management Comments

Commenting on the strong quarterly results, Mukesh D. Ambani, Chairman and Managing Director of RIL said “I am pleased with the record performance of our consumer businesses which continue to scale new milestones every quarter. We saw consistent net subscriber additions and higher engagement in Digital Services segment…Our Retail business delivered record performance with strong revival in footfalls, store additions and digital integration…Performance of our O2C business reflect subdued demand and weak margin environment across downstream chemical products…Our domestic Oil & Gas business continued to deliver robust performance maintaining production at 19 MMSCMD levels in the KG D6 block, significantly enhancing energy security for the country. We are confident of commissioning MJ Fields by year end.”

Other Developments

Reliance Jio Infocomm Limited (Jio) introduced JioTrue5G-powered Wi-Fi services in the temple town of Nathdwara, Rajasthan. It will expand services in high-footfall areas such as Educational Institutes, Religious places, Railway Stations, Bus stands, Commercial Hubs, and many more.

The Board of Directors of RIL has approved a plan, according to which the financial services undertaking of the company will be demerged into Reliance Strategic Investments Limited (RSIL), the wholly-owned subsidiary of RIL. It will be renamed Jio Financial Services Limited (JFSL) and will be listed on the Indian stock exchanges. Notably, all shareholders of RIL will get one equity share of JFSL for every share held.

Our Viewpoint

In the fast-evolving world, RIL’s strong quarterly performance depicts long-term growth prospects. Though the O2C business suffered due to some regulatory and macroeconomic challenges, the company remains victorious in terms of growth in other segments. RIL seems overvalued at current levels compared to its peers. Still, high returns, the company’s dividend policy, strong prospects, and robust financials can make the stock a profitable investment for investors.