New Delhi: Reliance Industries Limited (RIL) has reported a strong fourth-quarter performance, beating analyst estimates with a 19% year-on-year increase in net profit to ₹19,299 crore ($2.6 billion) and a 2% increase in revenue to ₹2.16 lakh crore ($29 billion). However, the company’s stock remained flat due to concerns over its growing capital expenditure. The stock had touched a 52-week low of ₹2,180 ($29) in March and has been trading flat since the beginning of April.
RIL’s full-year 2023 net profit rose by 9.9% to ₹66,702 crore ($9 billion), while earnings before interest, taxes, depreciation and amortization (EBITDA) were ahead of brokerage estimates at ₹1.4 lakh crore ($19 billion). The company’s revenue grew by 23.7% to ₹8.93 lakh crore ($120 billion). Despite the strong performance, RIL’s capital expenditure rose to an all-time high of ₹1.4 lakh crore ($19 billion) due to the acquisition of 5G spectrum and the rollout of 5G services, which impacted the company’s bottom line.
However, brokerages remain bullish on RIL’s prospects, with an average target price of ₹2,954 ($40) in the next 12 months, representing an upside of around 25%. They believe that RIL’s consumer business will be a key growth driver going forward, with a rise in gross refining margins being key for growth in the company’s O2C earnings. The company’s retail business is also expected to sustain fast growth due to new store additions and high conversions, while Reliance Jio, RIL’s telecom business, is focused on 5G rollout across India by December 2023.
Brokerages maintain that Jio-related capital expenditure will climb down, as the company has front-loaded it to complete the pan-India rollout of 5G by the end of 2023. However, they note that Jio’s revenue growth was sluggish due to disappointing ARPU growth (flat QoQ) and the absence of any direct tariff hike in the quarter. Despite this, analysts believe that there is a case for tariff hike in the future, but it is conservatively assumed to be only after the 2024 general elections.
RIL’s retail business posted a 12.9% growth in net profit to ₹2,415 crore ($324 million) in the March quarter, aided by growing footfalls, new store additions, and high conversions. The company opened over 3,300 stores in FY23, taking the total count to 18,040 stores. However, the depreciation and finance costs went up due to the addition of more stores and warehousing space. Reliance Retail is yet to fully ramp up its operations from stores absorbed from Future Retail, which has led to its per square feet revenue remaining below pre-COVID levels, according to Jefferies.
While brokerages remain bullish on RIL’s prospects, they are also cautious about the company’s growing capex and high debt levels resulting from expansion. Despite this, they maintain that RIL’s performance in the long run is expected to be strong, driven by its consumer business, which is expected to sustain fast growth, and its telecom business, which is focused on 5G rollout across India.
