Focus shifts to RIL's non-oil operations

ET Intelligence Group: The March quarter performance of Reliance Industries (RIL) was weighed down by its oil and gas-related businesses though digital, telecom and retail cushioned earnings. Since oil-to-chemicals (O2C) division is expected to remain under pressure in the June quarter due to the continued conflict in West Asia, investors will keenly track the performance of non-oil business segments to gauge the extent of earnings momentum in the medium term.

Analysts have cut target price of the stock after lowering the earnings expectations by 3-4% for FY27. The operating profit before depreciation and amortization (Ebitda) of the O2C segment, which contributes 57% to revenue, declined 4% year-on-year with margins slipping to a nine-quarter low of 7.9% amid supply disruptions from West Asia conflict. During an analyst call, the management said that O2C margins are expected to stay volatile, supported by strong crack spreads or difference between crude prices and prices of final products, but weighed down by high crude premium, freight, and insurance costs.

Jio Platforms, which includes digital and telecom businesses, posted an Ebitda growth of 18%. The retail segments recorded 3% Ebitda growth.

The telecom business reported a 4% increase in average revenue per user (ARPU) to ₹214 despite the absence of tariff increase, aided by sustained subscriber momentum and pick-up in home broadband. The next phase of tariff revision is not expected in the current quarter and growth in ARPU may remain modest and driven by a sustained improvement in 5G adoption-5G subscribers accounted for 54.6% of the total subscriber base of 524.4 million in the March quarter compared with around 27% two years ago.

According to Motilal Oswal Financial Services, the telecom segment's overall financial performance improved in FY26 amid better free cash flow and lower intensity of capital expenditure. In the retail segment, Ebitda growth for the quarter was limited to 3% despite around 11% growth in revenue as the company focussed on scaling up hyperlocal deliveries, which are low-margin in nature.

The store expansion during FY26 was calibrated with just over 1% increase in retail space. In FY27, the profitability is expected to stay muted with continued pick up hyperlocal activities.

On the new energy front, company's 40 GWh GIGA factory is expected to be operational in current calendar year.

The commercial sales (excluding captive consumption) are expected to begin from next fiscal year and may start contributing to the consolidated revenue by FY30.

Motilal Oswal Financial Services has iterated 'buy' rating on RIL's stock but has cut target price by over 3% to ₹1,655. "Sustained mid-to-high teen growth in retail and a tariff hike, along with impending JPL IPO, remain the key triggers for RIL's stock price," the broker noted. Reliance's stock was last traded at ₹1,327.7 on Friday on the BSE, 1.2% lower than the previous day's closing.

Its March quarter result came after market hours.