Reliance Industries Q1FY23: Record GRMs lift consolidate earnings

What’s buzzing:

Reliance Industries' Q1FY23 profitability was driven by strong refining margins in O2C segment (albeit lower than expectations). While RJio reported better than expected ARPU as well as subscriber addition, retail segment results were a mixed bag with beat on the EBITDA front and reported revenue being lower than estimated.

Context:

RIL's consolidated revenue was Rs 223113 crore, up 54.5% YoY against our estimate of Rs 231501 crore. EBITDA was Rs 37997 crore, up 62.6% YoY and 21.1% QoQ, below our estimate of Rs 47108 crore. EBITDA growth YoY was driven by O2C (up 62.6% YoY) and digital service (26.3% YoY) mainly on account of higher refining profitability in O2C coupled with tariff hike led ARPU growth. PAT stood at Rs 17955 crore, up 46.3% YoY and 10.8% QoQ against our estimate of Rs 27909 crore.

Perspective:

O2C (Oil to Chemicals) revenue was Rs 161715 crore, up 56.7% YoY, as growth was mainly attributed to increase in crude oil and product prices. EBITDA grew sharply by 62.6% YoY to Rs 19888 crore. However, it was weaker than our estimate amid higher crude purchasing and operating costs. Reliance Jio’s Q1 quarterly print was better than expected. The company added 9.7 million subs and the positive surprise was on higher ARPU growth. The ARPU saw a growth of 4.8% QoQ at Rs 175.7, driven by residual pass through of tariff hike undertaken in December, 2021. On Retail front, results were a mixed bag with beat on the EBITDA front, however revenues were below our estimates. On a favourable base, revenue grew by 51% YoY (flattish QoQ) to Rs 58544 crore and absolute EBITDA nearly doubled YoY to Rs 3837 crore. In oil & gas segment, KG-D6 production during the quarter was 19 mmscmd. Higher realisation aided EBITDA growth of 243.4% YoY which resulted in EBITDA of Rs 2737 crore. Summing up, O2C earnings were below estimates and led to lower than expected profitability. In Q2FY23E-TD, global refining margins dipped from peaks witnessed in Q1FY23. Also, imposition of windfall tax on fuel exports might limit the refining profitability. Going forward, RIL's consumer business will be the growth driver. Long term prospects and dominant standing of RIL in its product & service portfolio provides comfort for long term value creation. Additionally, investment in new energy verticals will be key monitorable, going ahead.