RIL’s Q3 may have set the floor for the stock, but upside catalysts remain elusive
Subscribe to enjoy similar stories. Reliance Industries Ltd (RIL) stock’s underperformance in 2024 was striking, falling by 6% against Nifty50’s 9% gain. The good news is the December quarter (Q3FY25) results signal that the worst might be over in terms of pressure on its two businesses.
Profitability in the oil-to-chemicals (O2C) division and revenue growth in the retail segment grew year-on-year after declining in Q2FY25. Still, the stock lacks catalysts such as a listing of the company’s telecom and retail verticals. Progress on the new energy business is also critical.
While the Street will cheer any update on these fronts, the stock’s valuation based on annual sustainable Ebitda (excluding minority interest) of ₹1.5 trillion translates to an EV (after considering spectrum liability) to Ebitda of 12x, which may limit the downside. Also read: L&T Tech's Q3 excites, but don’t ignore near-term headwinds The O2C business has likely bottomed out despite continued year-on-year pressure on gross refining margins of transportation fuels such as petrol, diesel and aviation turbine fuel (ATF). Note that these fuels account for nearly 60% of the refinery’s throughput.
Despite this, the segment reported 2% growth in Ebitda to ₹14,402 crore, reversing the trend of declining Ebitda in the first two quarters of FY25 (by 14% and 24%). The recovery is largely due to the sequential rise in margins on diesel and ATF, even as the margin on petrol dipped further RIL’s retail business revenue increased by 7% year-on-year to ₹79,595 crore. The number of stores rose by just 2%, meaning the average revenue per store grew by 5%, which is still unexciting.
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