Reliance Becomes First Indian Firm To Clock $100 Billion In Revenue. What Should Investors Do?

Billionaire Mukesh Ambani-led Reliance Industries became the first Indian company to clock revenue of $100 billion in a year. The oil-to-telecom conglomerate's profit came in at Rs 16,203 crore for quarter ended March 2022, marking an increase of 22.5 per cent from Rs 13,227 crore during the same period last year. Its revenue from operations jumped 37 per cent annually to Rs 2,11,887 crore. Sharp jump in profit came on the back of strong growth in oil to chemicals business, the country's most valuable company said.

How Reliance Industries’ Businesses Fared 

Reliance Industries oil-to-telecom business staged strong performance during the quarter ended March 2022 with its revenue rising 44 per cent to Rs 1,45,786 crore on the back of spike in crude oil prices due to supply constraints on the back of Russian invasion of Ukraine.

Oil-to-chemical business' earnings before interest, taxes, depreciation and amortization (EBITDA) or operating profit improved by 38.1 per cent to Rs 52,722 crore on the back of better transportation fuels margins due to demand revival, higher domestic product placement for polymers and polyesters and optimized operations across energy, feedstock and product mix.

Meanwhile, Reliance Industries expects prices of natural gas in India to rise again in October as its gas exploration business reaps the rewards of a global surge in energy prices that have already pushed the rates to a record high.

The conglomerate expects the price cap for its KG-D6 gas sales to rise over the current $9.92 per million British thermal units, Sanjay Roy, senior vice-president for exploration and production, said in an investor call following the announcement of its quarterly earnings on Friday.

Its telecom arm performed well during the quarter with Reliance Jio's net profit rising to Rs 4,173 crore, up 24.19 per cent from the same period last fiscal. Jio's average revenue per user (ARPU), a key metric to evaluate telecom firm's performance, improved to Rs 167.60 per user per month, marking an upside of 21.3 per cent annually and 10.5 per cent sequentially.

Reliance Jio saw healthy revenue and EBITDA growth of 8 per cent and 11 per cent sequentially led by strong 11 per cent ARPU growth. While gross subscriber remained strong with more than 35 million additions, churn of inactive subscribers continued to see net subscriber decline for the third straight quarter. EBITDA margin or operating profit margin improved 110 basis points to 50.3 per cent, Motilal Oswal said.

Reliance Retail Ventures Limited (RRVL) reported profit of Rs 7,055 crore for financial year 2021-22, up 29 per cent and its revenue touched nearly Rs 2 lakh crore.

“Reliance Retail posted slower-than-expected net revenue and EBITDA growth at 23 per cent and 16 per cent respectively, led by aggressive footprint addition and partly hit by Omicron. March 2022 ended with footfalls above pre-Covid level, offering visible green shoots for the coming quarter,” Motilal Oswal said.

Reliance Industries: Should You Buy, Sell Or Hold?

The stock should benefit from three areas: a) accelerated EBITDA growth in retail business, which garners about 4 times higher valuation multiple versus overall business. Reliance Jio’s steady revenue growth from market share gains, tariff hikes and other wireline/digital avenues; and c) better refining margin that should translate into 20 per cent EBITDA growth in the standalone business, Motilal Oswal said.

"A steady Q4, favourable business factors across different verticals, especially the new energy vertical is likely to keep momentum in the stock and improve valuations. The stock has outperformed the index in the recent terms but is under selling pressure recently and might take support at Rs 2,300 levels. Investors are advised to accumulate at dips," said Manoj Dalmia, founder and director at Proficient Equities.

Motilal Oswal has reiterated its buy call on the stock for target price of Rs 2,935. The brokerage has arrived at the target price using the sum of the parts valuation (SOTP) method. As per the SOTP, Motilal Oswal has ascribed to valuation of Rs 728 per share for refining and petrochemical business, Rs 1,007 per share for Reliance Jio and Rs 1,276 per share for Reliance Retail.