Reliance's refining margins recover but retail remains uncertain
Reliance Industries Ltd's recent underperformance — weak refining margin — has reversed but the other, poor-retail top-line growth, is difficult to anticipate, brokerage JP Morgan said in a report. Reliance stock is down 22 per cent from its peak on July 8 (NIFTY down 3.3 per cent), sharply reversing outperformance from earlier in the year.
In a market where most stocks are trading well above historical valuations, Reliance's fair relative valuations are an attraction.
The company helmed by billionaire Mukesh Ambani has three main business verticals — oil refining and petrochemical business housed in oil-to-chemical (O2C) unit, telecom arm Jio and retail. It also has a media unit and a new energy business.
Reliance Retail plus Telecom now account for about 50 per cent of total 2023-24 (FY24) consolidated EBITDA. These, JP Morgan estimates, will account for almost all of net EBITDA growth over the next three years. With an EBITDA run-rate of USD 20 billion a year, Reliance is expected to deliver positive free cash flow for the next three years (despite elevated capex plans at new energy complex and in the retail business, and towards petchem capacity expansions).
«We see two headwinds hurting: 1) refining margins fell sharply starting June, and 2) revenue / EBITDA growth at its consumer retail subsidiary (Reliance Retail) continued to disappoint,» it said.
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