After a dip in earnings, brokerages expect Jio and Reliance Retail to drive growth for Reliance Industries (RIL) in the coming quarters. Despite a double-digit increase in Q2 Ebitda from Jio Platforms and the oil and gas segment, a significant decline in Ebitda from the oil-to-chemicals (O2C) segment posed a challenge for the company. In Q2FY25, Ebitda for Jio Platforms rose by 17.8% year-on-year, while O2C Ebitda fell by 23.7% due to a sharp decline in product margins.
“We believe RIL could still achieve a robust 14-15% EPS CAGR over the next three to five years, with Jio’s ARPU expected to rise at an 11-12% CAGR over FY24-28. ARPU is on a structural uptrend, supported by the industry structure, future investment needs, and the need to avoid a duopoly market—A Giant Digital Leap,” said analysts at JM Financial Institutional Securities.
Reliance Retail’s Ebitda is also projected to grow at 15-20%, driven by continued momentum in omni-channel capabilities across segments, according to JM Financial analysts. They added that the potential listing of Jio and Reliance Retail in the next few years could trigger a re-rating of the company.
Analysts at Motilal Oswal identified Jio as the key driver of Ebitda growth for RIL over FY24-27, fueled by more frequent tariff hikes, market share gains in wireless services, and the expansion of its home and enterprise business.
“We expect a growth recovery in retail following the recent rationalisation of unprofitable stores and the B2B segment, driven by an increased footprint, category additions, and a potential entry into quick commerce,” they noted.
While RIL management expects an improvement in refining margins in the near term due to potential tightening in the fuel market from refinery cuts in Europe and Asia in Q3FY25, analysts foresee some challenges.
Refining margins are expected to remain soft in H2FY25 due to weak demand and additional supply from new capacities, Motilal Oswal analysts observed. “While polymer cracks in Q3FY25 to date have remained flat quarter-on-quarter, PX spreads have declined further, and we do not anticipate a sharp recovery in the petrochemical segment in the latter half of FY25. The impact of China’s stimulus and new capacity additions will be key factors to monitor for the petrochemical and refining segments,” they added.
ICICI Securities analysts expect O2C earnings to remain subdued in FY25, citing a weaker first half and an uncertain margin environment for the remainder of the year. “A combination of higher debt (leading to increased interest costs and slower other income growth) and muted petrochemical spreads is amplifying the weakness compared to our previous forecasts. As a result, we have revised our assumptions for FY25/26/27,” they said.
JM Financial analysts, however, believe concerns about RIL’s net debt are overstated, expecting it to decline gradually as capital expenditure moderates—from Rs 2.3 lakh crore in FY23 to Rs 1.2-1.4 lakh crore annually—and is fully funded by increased internal cash generation. “RIL’s guidance on keeping reported net debt to Ebitda below 1x (0.75x at the end of Q2FY25) also provides comfort,” they said.
From: financialexpress
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