India’s largest stock, Reliance Industries bonus issuance is much-awaited ahead of Diwali festival. Reliance has announced its Q2 results, and despite weakness in O2C and retail business, brokerage JM Financial has recommended BUY for target price of Rs 3,470. Reliance is yet to announce the record date for its upcoming bonus which is the first in seven years.
After its Q2 results, Reliance stock ended at Rs 2687.90 apiece, down by 2.09% on BSE with market cap of Rs 18,18,654.15 crore. The m-cap of Reliance makes the company largest in India, and also biggest in oil and gas segment.
The latest bearish tone in Reliance could be attributed to the weakness in O2C business, lower-than-expected GRMs, and slow down in retail business.
The latest drop has squeezed Reliance’s YTD gains to merely at 3.79% on BSE.
Reliance Industries Bonus Issue:
Market expected Reliance to announce its bonus issue record date on October 14. However, they were disappointed when the company did not shed any light on the corporate action.
Reliance has announced bonus issue ratio of 1:1 in August month. The bonus issue ratio means, every shareholder holding 1 (one) fully paid-up equity share of Rs. 10/-each on the record date will receive 1 (one) fully paid-up equity share of Rs. 10/- each.
Last month, on September 5, Reliance said, “This will be the largest-ever issuance of bonus equity shares in the Indian equity market. The issuance and listing of bonus shares will coincide with the upcoming festive season in India and will be an early Diwali Gift to all our esteemed shareholders.” Hence, the record date is expected in October.
Earlier, last week, Reliance fixed October 7th as the deadline for allowing those investors to pay call money on partly paid-up shares, turning them into fully-paid up shares.
Investors will keenly watch out for Reliance’s record date on bonus issue.
This will be the first bonus issue by Reliance in seven years. The last bonus issue was also of 1:1 ratio in September 2017. While Reliance’s first bonus issue was also of 1:1 in November 2009.
Reliance Industries Q2 Results:
In Q2FY25, the company’s consolidated net profit attributed to the owners of the company, at Rs 16,563 crore, declining by 4.8% from its PAT of Rs 17,394 crore in the same quarter a year ago. Reliance’s Q2PAT is higher compared to net profit of Rs 15,138 crore in Q1FY25.
Further, gross revenue witnessed a gradual upside of 0.8% YoY to Rs 258,027 crore in Q2FY25, compared to Rs 255,996 crore in Q2FY24. As per Reliance, on the top-line front, oil-to-chemicals (O2C) revenue improved with higher volumes and increased domestic placement of products.
During the quarter, the he EBITDA margin for Reliance Retail Ventures Limited (RRVL) improved by 30 bps with a continued focus on streamlining operations and a calibrated approach in B2B. The oil and gas segment EBITDA increased by 11.0% on account of sustained volume growth and one time provisioning towards decommissioning cost for Tapti field in Q2 FY 24. On the other hand, the EBITDA of Jio Platforms Limited (JPL) increased 17.8% Y-o-Y due to a better subscriber mix, digital services scale-up and revision in telecom tariffs.
BUY Reliance Stock:
In its latest note dated October 15, JM Financial said, “RIL’s consolidated 2QFY25 EBITDA was 1.7% below JMFe and 3.5% below consensus at INR 391bn (up 0.8% QoQ, but down 4.7% YoY) due to slightly lower O2C and Digital EBITDA while Retail EBITDA growth was weak as expected. O2C business EBITDA at INR 124bn was 1.4% below JMFe due to slightly lower-than-expected GRMs (implied ~USD 7.1/bbl) and weak petchem margins, while E&P segment EBITDA was 1% above JMFe at INR 52.9bn.”
Moreover, JM’s note also said, “Digital EBITDA was slightly lower than JMFe at INR 161.4bn on higher subs loss at 10.9mn; that was, however, partly offset by higher tariff-hike-led ARPU at INR 195.1. Further, Retail business EBITDA continued to be muted at INR 58.6bn on weak Fashion and Lifestyle (F&L) demand, continued focus on streamlining of operations and calibrated approach to the B2B business.”
On the valuation, JM Financial said, “We reiterate BUY on RIL (unchanged 1-year TP of INR 3,470; and 3-year TP of INR 4,295); we believe net debt concerns are overdone as expect its net debt to decline gradually as capex will not only moderate (INR 1.2trln-1.4trln p.a. vs. INR 2.3trln in FY23) but, importantly, also be fully funded by a gradual increase in internal cash generation.”
WHY BUY Reliance Stock? According to JM, RIL’s guidance on keeping reported net debt to EBITDA below 1x (0.75x at end-2QFY25) also gives comfort. Also, the brokerage believes that RIL could still drive a robust 14-15% EPS CAGR over the next 3-5 years with Jio’s ARPU expected to rise at 11-12% CAGR over FY24-28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market.
Reliance’s retail business EBITDA is also expected to grow at 15-20% on continued strong growth momentum as RIL is driving omni-channel capabilities across segments. Further, listing of Jio and Retail business over the next few years could lead to a potential re-rating.
