RIL Q3 Preview: Strong O2C, Jio to Drive Revenue Growth; Retail growth is lagging behind

Reliance Industries Ltd (RIL) is expected to deliver steady performance in the December quarter, with brokers posting mid-single-digit growth in revenue and earnings, mainly supported by strength in its oil-to-chemicals and digital businesses, even as retail growth remains subdued and upstream pressure remains.According to an average estimate of seven brokers, RIL’s consolidated revenue in the third quarter is expected to grow around 8% year-on-year, while profit after tax will rise around 7% from a year earlier. Consolidated EBITDA is expected to grow nearly 9% year-on-year, with modest sequential improvement.

Oil-to-chemicals (O2C)

The oil-to-chemicals sector is expected to be the biggest driver of earnings growth this quarter. Most brokers expect a strong recovery in O2C EBITDA, aided by better refining margins and a weaker rupee. Kotak Equities expects O2C EBITDA to grow by around 15% YoY and 10% QoQ, supported by improved refining margins. Nuvama estimates a 13% year-on-year increase in O2C EBITDA, led by a sharp 21% increase in Singapore GRMs, driven by strong petrol and diesel spreads. Emkay is even more optimistic on the sequential front, forecasting an 11% quarter-on-quarter increase in O2C EBITDA to around Rs 16,600 crore.

However, YES Securities expects refinery production to decline marginally by 0.6% year-on-year and 1.7% sequentially to 17.8 million tonnes, while GRMs are estimated at $13.6 per barrel. JM Financial also sees O2C EBITDA rising 8.5% quarter-over-quarter, with implied GRMs improving to around $11 per barrel, compared to $9.5 per barrel in the September quarter.

Jio

The digital services sector is expected to demonstrate steady growth, driven by continued subscriber expansion and incremental improvement in average revenue per user. Kotak Equities expects digital EBITDA to grow 16.5% year-on-year, although sequential growth is likely to be modest at around 2.7%, supported by a slightly higher ARPU and a slightly higher subscriber base. Nuvama estimates that Jio’s EBITDA will grow 16% year-on-year and 2% quarter-on-quarter, driven by a 5% increase in ARPU year-on-year and healthy subscriber growth.YES Securities pegs Jio ARPU at Rs 213.2 for the quarter, with the subscriber base expected to reach 512.4 million. JM Financial expects ARPU to rise 0.4% sequentially to around Rs 212, supported by tariff hikes, while subscriber base will reach a robust 8.3 million. Emkay expects ARPU to increase by approximately 1% quarter-over-quarter, with net subscriber additions of approximately 5.5 million during the quarter.

Retail

Retail is expected to remain the weak spot in RIL’s portfolio, with growth impacted by higher competitive intensity and investments in high-speed commerce.

Kotak Equities expects retail EBITDA to grow just 4.5% YoY, while JM Financial expects EBITDA growth of around 3.8% YoY, noting that profitability could remain under pressure due to the increase in high-speed trading initiatives. Nuvama expects retail EBITDA to rise 3% year-on-year, helped in part by a prepared festive season.

YES Securities estimates that retail sales will grow 8.1% year-on-year and 7.9% sequentially to around Rs 97,700 crore, with an EBITDA margin of around 7.59%. Emkay expects retail EBITDA to rise 3% to around Rs 7,030 crore.

Oil and gas (E&P)

The upstream oil and gas business is expected to continue to face headwinds due to lower production and softer realizations. Kotak Equities expects E&P EBITDA to decline approximately 15% year-over-year and approximately 5% sequentially, due to lower volumes and realizations.

Nuvama similarly estimates a 13% year-over-year decline in O&G EBITDA on an 8% decline in production. Emkay expects upstream EBITDA to decline 4% sequentially to around Rs 4,810 crore, while JM Financial expects a 3% decline quarter-on-quarter due to natural decline in gas production.

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Overall, brokers expect RIL’s performance in the December quarter to be anchored by strong O2C and digital revenues, which should more than offset continued upstream weakness and subdued retail growth.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of the Economic Times)