RIL reports strong Q2 growth driven by 5G, O2C recovery and retail expansion

ET Intelligence Group: Improved 5G monetisation, cyclical recovery in oil-to-chemicals (O2C) division and robust retail expansion helped Reliance Industries (RIL) report 14% year-on-year growth in net profit and 14.6% rise in Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) for the September quarter. Despite significant increase in the capital expenditure (capex) to ₹40,000 crore led by the new energy initiatives from the previous quarter's outgo of ₹29,875 crore, the net debt-EBITDA ratio remained stable at around 0.6 due to sustained profitability.

The country's largest company by revenue and market capitalisation is set to make a significant stride in its plan to build a fully integrated solar manufacturing value chain. Its solar cell giga-factory at Jamnagar will commence operations in October. Reliance is also undertaking backward integration by setting up polysilicon, ingot, and wafer facilities, creating a complete solar photovoltaic (PV) value chain.

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In its spree to focus on future capabilities, RIL has undertaken datacentre investments to propel into the field of artificial intelligence (AI) under the fully-owned subsidiary Reliance Intelligence. Earlier, the company had announced a joint venture with Meta involving an initial capex of $100 million, two-third of which will be funded by RIL. While it is too early to predict the impact of this initiative on the company's future growth, it will help RIL cater to enterprise clients better.

The oil-to-chemicals (O2C) division, which formed nearly 57% of the consolidated revenue of ₹2.8 lakh crore in the September quarter, encompasses refining, petrochemicals, fuel retailing, aviation fuel, and bulk wholesale marketing. Its EBITDA grew significantly by 21% year-on-year to ₹15,008 crore amid a margin expansion of 130 basis points to 9.3%. It was driven by a strong recovery in fuel spreads, with gasoline, jet fuel and diesel margins rising 22-37% year-on-year. The O2C outlook remains favourable given the closure of capacities in the western parts of the world and expected higher domestic demand for fuels due to the festive season.

Jio Platforms, which houses RIL's telecom and digital services businesses, reported healthy subscriber additions, taking its total base to 50.6 crore users, including 23.4 crore 5G customers. The company's average revenue per user (ARPU) rose to ₹211.4 per month from ₹195.1 a year ago and ₹208.8 a quarter ago. It was supported by 30% year-on-year and 6.8% sequential increase in data usage at 58.4 billion GB during the quarter. This augurs well at a time when the company is pushing for more existing users to adopt 5G, which now forms 50% of the Jio's network traffic.

Reliance Retail reported a gross revenue of ₹90,018 crore, up 18% YoY, and an EBITDA of ₹6,816 crore, up 16.5%.

The company's growth was driven by strong festive demand, with grocery sales rising 23% and fashion and lifestyle sales up 22%. It also recorded a sharp traction in quick, hyper-local commerce, where daily orders jumped 200% year-on-year and 42% sequentially.

Analysts have marginally improved estimates at the consolidated level given steady performance by Jio, retail and O2C. Emkay Research has raised FY27 revenue and EBITDA estimates by 2% and 1%, respectively, while reducing the net profit estimate by 3% due to non-operating factors. The broking firm has retained a buy rating on the stock with a target price of ₹1,680, a 19% premium over Friday's closing stock price of ₹1,417 on BSE.