Reliance Industries: What should you do with the stock after Q1 earnings? Here's what brokerages say

Reliance Industries, the country's largest company in terms of market value, saw its shares drop 2% in value in the previous trading session after the company failed to cheer investors with its Q1FY24 performance.

For the June quarter, the company posted a 14% QoQ and 5.9% YoY drop in its net profit to ₹18,258 crore, impacted by high finance costs and the rise in depreciation and amortization expenses.

The company's finance costs rose to ₹5,837 crore, marking a 46% YoY increase due to higher interest rates. The depreciation and amortization expenses surged 31.7% to ₹11,775 crore, due to an expanded asset base across all the businesses and higher network utilization in the Digital Services business.

In Q1 FY24, the company recorded revenue from operations at ₹2,31,132 crore, a 4.17% drop compared to the same quarter of the previous year led by a sharp decline in O2C revenues with a 31% fall in crude oil prices.

However, the operating profit saw a 5.1% YoY increase, reaching Rs. 41,982 crore, driven by consumer and upstream businesses that offset the decline in O2C (Oil to Chemicals) earnings.

O2C Segment: Subdued performance due to weak transportation fuel cracks

The revenue from oil to chemicals declined by 17.7% YoY to ₹1,33,031 crore, while the operating profit also fell by 23.2% YoY to ₹15,271 crore, led by a fall in transportation fuel cracks and lower downstream chemical margins. This was partially offset by operational flexibility, optimized feedstock cost and a conducive fuel retailing environment.

In a regulatory filing, the company said the demand was impacted by destocking on recessionary fears and high-interest rates, along with a slower-than-expected ramp-up in China markets. Additionally, the YoY comparisons were affected by historic high fuel cracks in 1Q FY23, resulting in a dislocation in energy markets, it added. 

Crude oil benchmarks fell Y-o-Y due to macroeconomic headwinds on high-interest rates and lower industrial activities in the US and EU. Continued Russian oil supply despite the EU ban and production cuts announced by OPEC+ countries did not impact production, keeping the market in surplus in 1Q FY24, the company stated.

Retail Vertical: Recorded highest-ever footfalls

Retail recorded a strong performance with a 19.5% increase in revenue from operations to ₹69,948 crore in Q1. The net profit soared 18.8% to ₹2,448 crore. 

The growth was driven by grocery, consumer electronics, fashion, and lifestyle. The retail segment witnessed the highest-ever footfalls at 249 million across formats, supported by strong store additions and deeper penetration.

The company added 555 stores during the quarter, taking the total store count to 18,446. Digital Commerce and New Commerce businesses continued to grow, contributing 18% of revenue. RIL completed the Metro Cash and Carry India acquisition and is working on integrating the business with Reliance Retail.

Jio: Jump in subscribers' base

Jio, the telecom arm of the company, reported a 12.5% YoY increase in net profit, reaching ₹5,098 crore in Q1FY24, compared to ₹4,530 crore in the same quarter of the previous fiscal year. The revenue from operations jumped 11.3% YoY to ₹30,640 crore.

During the quarter, Jio added 9.2 million subscribers, up by 2% QoQ, and the monthly churn rate decreased to 1.8%. The Average Revenue Per User (ARPU) grew by 2.8% YoY, driven by a better subscriber mix and the expansion of the wireline business.

The company attributed its revenue and EBITDA growth to sustained subscriber growth in both mobility and wireline services in the connectivity business. Additionally, the growth of the digital services platform, including Managed Video Broadcast and Cloud solutions, contributed to JPL's consolidated revenue growth, it said. 

Oil and Gas: Gas price realization boosts revenue

In the first quarter of FY24, the revenue for the Oil and Gas segment saw an increase of 27.8% YoY to ₹4,632 crore. This growth was mainly driven by higher gas price realization and an increase in KGD6 volumes due to the start-up of oil and condensate production from MJ fields.

During this period, the average price realized for KGD6 gas was $10.81/MMBTU, a notable rise from $9.72/MMBTU in 1Q FY23. The average price realized for CBM gas stood at $14.15/MMBTU in 1Q Y24 compared to $22.48/MMBTU in 1Q FY23.

The segment's EBITDA also witnessed significant growth, reaching ₹4,015 crore, which is a remarkable increase of 46.7% YoY. Furthermore, the EBITDA margin for 1QFY24 stood at 86.7%, showing an improvement of approximately 120 bps when compared to 1QFY23.

Brokerages Views

Following the company's Q1FY24 performance, brokerage firm Systematix Institutional Equities downgraded the rating on the stock to 'hold' from 'buy' and also trimmed its target price to ₹2,550 apiece from ₹2,766 to adjust the value of JFSL, which was estimated at ₹180 per share.

Motilal Oswal has retained its 'buy' recommendation on the stock with a target price (adjusted for JFS valuation) of ₹2,935 apiece.

BoB Capital Markets, on the other hand, continued with a 'buy' call on the stock with a target price of ₹3,015 apiece. ICICI Securities and HDFC Securities retained their 'add' ratings on the stock with a target price of ₹2,670 and ₹2,637, respectively.

32 analysts polled by MintGenie on average have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.