Reliance Industries Stock Drop: Profit Surge Doesn’t Prevent Decline
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Reliance Industries (RIL) shares experienced a downturn following the release of its first-quarter financial results, prompting investors to question the stock’s future trajectory. While the conglomerate’s overall performance presented a mixed picture, its telecom arm, Reliance Jio, emerged as a significant bright spot, continuing its robust growth.
Jio Shines Amidst Broader Weakness
Reliance Jio (RJio) demonstrated impressive financial health, with its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rising approximately 5% quarter-on-quarter. This figure represented a 2% beat over analyst estimates, primarily driven by reduced operational costs and exceptionally high incremental EBITDA margins of 97%.
Further bolstering Jio’s performance, the company added an impressive 9.9 million new subscribers,exceeding expectations. Its Average Revenue Per User (ARPU) also saw a healthy 1% increase, reaching Rs 208.8. This strong showing in the telecom sector was attributed to sustained subscriber acquisition and enhanced operational efficiencies.
A segment-wise analysis by Macquarie highlighted Jio’s strength, contrasting it with a less vibrant retail segment and a gradual recovery observed in the Oil-to-Chemicals (O2C) business from previous challenging periods.
Optimism for Future Growth
Despite the mixed quarterly outcomes, RIL management expressed a confident outlook for the group’s future growth prospects. The conglomerate anticipates doubling its group-wide EBITDA by 2029. Furthermore, growth guidance for the Jio and Retail segments suggests a doubling of earnings within the next 3-4 years, a projection reaffirmed by the management.
Analysts remain largely bullish on RIL’s new energy initiatives, even in the face of current operational hurdles. Nuvama characterized the new energy segment as the “largest multidecadal growth driver,” projecting the ramp-up of the new energy ecosystem within the next 4-6 quarters. The brokerage estimates that a fully integrated 10GW polysilicon-to-module facility, expected by the end of FY26, could contribute an additional 6% to the consolidated profit after tax.
Emkay provided a more specific timeline, indicating that the new energy ecosystem is expected to become fully operational within 4-6 quarters through strategic partnerships. This segment is projected to evolve into a self-funded model within a few years, with the potential for perpetual growth.
Analyst Ratings Remain Largely Positive
Reflecting confidence in the company’s long-term prospects, notably its new energy ventures, moast major brokerages have maintained positive ratings on RIL shares.
Jefferies maintained a ‘Buy’ rating with a target price of Rs 1,726.
Morgan Stanley kept an ‘Overweight’ rating and a target price of Rs 1,617.
Emkay sustained a ‘Buy’ rating with a target price of Rs 1,600.
Nuvama maintained a ‘Buy’ rating and a target price of rs 1,767.
Motilal Oswal kept a ’Buy’ rating with a target price of Rs 1,700.
JPMorgan maintained an ‘Overweight’ rating and increased its target price to Rs 1,695.
* HSBC and Nomura both maintained ‘Buy’ ratings with target prices of Rs 1,630 and Rs 1,600, respectively.
However,Macquarie offered a more cautious outlook,suggesting that Reliance’s share price might experience near-term moderation following the results announcement. Despite this, they maintained their ‘Outperform’ rating with a target price of Rs 1,500.
Conclusion: While the recent quarterly results presented a mixed bag for Reliance industries, the sustained strength of Jio and the significant long-term potential of its new energy initiatives continue to garner positive sentiment from analysts. Investors will be closely watching the execution of these growth strategies in the coming quarters.