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<ul><li>Reliance Industries’ consumer businesses are expected to drive earnings growth going forward.</li><li>However, RIL’s aggressive expansion in its retail and 5G investments have led to its capital expenditure rising to an all-time high in FY23.</li><li>Brokerages maintained their bullish outlook on the company, noting that the leverage levels are expected to remain comfortable thanks to strong cash flows.</li></ul>In spite of its Q4 earnings beating analyst estimates, RIL stock traded flat on Monday as the street continues to remain cautious on account of its growing capex. In March, the stock touched a 52-week low of ₹2,180, and has been trading flat since the beginning of April. And, the recent earnings report hasn’t changed the trajectory. In the morning trade on Monday, its shares rose 0.2% to ₹2,354 and gave up most of the early morning gains due to profit booking. Reliance Industries Q4 <a href="https://www.businessinsider.in/business/corporates/news/reliance-industries-q4-net-profit-of-19299-crore-beats-analyst-expectations-driven-by-retail/articleshow/99673940.cms">net profit rose</a> 19% YoY to ₹19,299 crore due to steady growth in the consumer businesses, and its revenues grew 2% to ₹2.16 lakh crore. For the full FY23, RIL <a href="https://www.businessinsider.in/business/corporates/news/reliance-industries-q4-net-profit-of-19299-crore-beats-analyst-expectations-driven-by-retail/articleshow/99673940.cms">reported</a> a 9.9% rise in net profit to ₹66,702 crore, while the earnings before interest, taxes, depreciation and amortization (EBITDA) was ahead of brokerage estimates at ₹1.4 lakh crore. The oil-to-data giant’s FY23 revenue grew 23.7% to ₹8.93 lakh crore. <cmsannotation type="cmsannotation" annotationid="Capital expenditure at an all-time high, funded by strong cash flows" comment="subhead" text="Capital expenditure at an all-time high, funded by strong cash flows">Capital expenditure at an all-time high, funded by strong cash flows</cmsannotation> While the topline and bottomline growth was ahead of estimates, RIL’s capital expenditure also rose to an all-time high of ₹1.4 lakh crore due to acquisition of 5G spectrum and rollout of 5G services. This also led to a 43% YoY rise in depreciation to ₹11,456, which impacted the company’s bottomline. However, brokerages do not seem to be concerned even as the capex and EBITDA both came in at ₹1.4 lakh crore for the whole year. “Capex rose to $17.6 billion in FY23 but this was fully funded by cash profits,” said a report by Goldman Sachs, adding that this gives a “comforting leverage guidance”. Brokerages also maintain that going forward, Jio-related capital expenditure will climb down since the company has front-loaded it as it seeks to complete the pan-India rollout of 5G by the end of 2023. <cmsannotation type="cmsannotation" annotationid="Brokerages see a 25% upside in the next 12 months" comment="subhead" text="Brokerages see a 25% upside in the next 12 months">Brokerages see a 25% upside in the next 12 months</cmsannotation> Analysts believe that RIL’s consumer business will be a key growth driver going forward. A rise in gross refining margins will be key for growth in the company’s O2C earnings, and also help it finance the new energy ambitions while maintaining debt at comfortable levels. Brokerages maintain their bullish outlook on the company, with an average target price of ₹2,954 in the next 12 months, presenting an upside of around 25%. <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Brokerage house </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Rating </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Target price </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Jefferies </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹3,125 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">JP Morgan </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Overweight </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2,960 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Goldman Sachs </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2,890 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Kotak Institutional Equities </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2,800 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">JM Financial </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2,900 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Motilal Oswal </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹2,800 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Nuvama Institutional Equities </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Buy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹3,205 </td></tr></tbody><tbody></tbody><tbody></tbody></table> Source: Brokerages <cmsannotation type="cmsannotation" annotationid="Retail business steady, but softness observed in certain segments" comment="subhead" text="Retail business steady, but softness observed in certain segments">Retail business steady, but softness observed in certain segments</cmsannotation> <keyword id="58448" type="General" weightage="20" keywordseo="Reliance-Retail" source="Orion">Reliance Retail</keyword> <a href="https://www.businessinsider.in/business/corporates/news/reliance-retails-q4-net-profit-grows-12-9-on-the-back-of-rapid-expansion/articleshow/99673732.cms">posted</a> a 12.9% growth in net profit to ₹2,415 crore in the March quarter aided by growing footfalls, new store additions and high conversions. “In retail, with very sharp retail space growth, the rising share of new commerce and FMCG forays, growth will likely sustain at a fast clip,” said a report by Kotak Institutional Equities. In FY23, the company opened over 3,300 stores taking the total count to 18,040 stores. However, as they added more stores and warehousing space, depreciation went up by 91% to ₹1,188 crore during the quarter along with finance costs that shot up by 148%. <keyword id="58448" type="General" weightage="20" keywordseo="Reliance-Retail" source="Orion">Reliance Retail</keyword> is yet to fully ramp-up its operations from stores absorbed from Future Retail, which has led to its per square feet revenue to remain below the pre-Covid levels, said Jefferies. While Reliance Retail sounded excited about its foray into FMCG and beauty space, high capex due to expansion would have resulted in higher debt levels, say brokerages. “While we like Reliance Retail’s positioning in Indian retail, we remain perplexed with poor disclosures which leaves a lot to imagination,” it said. <cmsannotation type="cmsannotation" annotationid="Jio: Adding subscribers but with low yields" comment="subhead" text="Jio: Adding subscribers but with low yields">Jio: Adding subscribers but with low yields</cmsannotation> Reliance Jio <a href="https://www.businessinsider.in/business/telecom/news/reliance-jio-net-profit-grows-1-7-sequentially-at-4716-crore-in-q4-fy23/articleshow/99674353.cms">reported</a> a net profit growth of 1.7% sequentially to ₹4,716 crore in March quarter from ₹4,638 crore last quarter. Its revenue from operations also grew marginally by 1.7% sequentially to ₹23,394 crore as compared to ₹22,998 crore in the previous quarter. “Although subscriber additions were strong and higher than expected, revenue growth was sluggish, due to disappointing ARPU growth (flat QoQ). We believe lower ARPU growth could be attributed to Jio doing away with most of the low end users and absence of any direct tariff hike in the quarter,” said Nuvama Institutional Equities in a report. The telecom business is currently focused on 5G roll out across India by December 2023. So far Jio has extended coverage of its 5G services to over 2,300 cities/towns across India. “In Jio, the near-term focus will be 5G and accelerated fixed broadband rollouts. As customer engagement picks up, we believe there is a case for tariff hike, but we conservatively assume tariff hike only after 2024 general elections,” said a report by Kotak Institutional Equities. <div type="javascript" title="Custom" contenttype="Text"><cdata><![CDATA[]]></cdata></div> SEE ALSO: <a href="https://www.businessinsider.in/stock-market/markets/news/-some-sectors-will-benefit-from-lower-energy-prices-in-fy24-a-balasubramanian/articleshow/99722850.cms">Earnings to remain volatile in FY24, but some sectors will benefit from lower energy prices, says Aditya Birla Sun Life MF’s CEO A Balasubramanian</a> <a href="https://www.businessinsider.in/finance/banks/news/yes-bank-drops-nearly-5-as-high-provisions-drag-down-its-q4-net-profit/articleshow/99721698.cms">Yes Bank stock slips 5% as high provisions drag down its Q4 net profit</a> <a href="https://www.businessinsider.in/business/corporates/news/reliance-industries-q4-net-profit-of-19299-crore-beats-analyst-expectations-driven-by-retail/articleshow/99673940.cms">RIL’s Q4 net profit of ₹19,299 crore beats analyst expectations, driven by retail</a>

RIL’s Q4 performance keeps brokerages bullish on the company’s prospects

<keyword id="8460033" type="General" weightage="20" keywordseo="bofa-securities" source="Orion">BofA Securities</keyword> has given a 'Buy' call for E Ink, Hundsun, Japan Airlines, Mazda Motor, PICC Group, <keyword id="6355199" type="General" weightage="20" keywordseo="reliance-industries" source="Orion">Reliance Industries</keyword>, Samsung F&amp;M, SBI Cards, and United Breweries for the July-September 2023 quarter. The financial services company sees potential return on investments in the range 6-72 %. It, however, gave an 'Underperform' rating for IDP Education, with a potential 16 % downside in its stock price. BofA Securities said they presented a list of 10 quarterly stock recommendations among Asia Pacific companies, based on the view that these stocks could have the most significant market and business-related catalysts in the quarter ahead. "Given the breadth and scope of our overall coverage of stocks and sectors in Asia Pac, we recognize this recommended list cannot include nor is it designed to include all major catalysts. Our objective is to identify what we believe will be the highest impact ideas in each quarter when we publish the list," the financial services company said. For Reliance, the financial services company has a 'Buy' rating as Jio has emerged as the top telecom player in a growing market in India. "Reliance's telecom subsidiary -Jio - has garnered a large number of paying subscribers. Service quality perceptions continue to improve. Data demand appears to be sticky, and relatively less price sensitive," it said. "Reliance is also completing a major petrochemicals expansion, which should significantly increase its free cash flow potential. Continued improvements at Jio and FCF (free cash flow) generation should drive upside." Explaining the rationale behind the recommendation, it said it maintained 'Buy' on Reliance Industries after finding find risk-reward favorable as it heads into its Annual General Meeting (likely in August). With Jio making investments in 5G, BofA Securities sees further room for the company to gain market share -- mainly at the expense of Vodafone Idea. "Furthermore, any better-than-expected revenues in fiber broadband or digital initiatives could surprise positively." The Indian conglomerate foraying into "high-margin" niches like chocolates, cosmetics, and beverages by making acquisitions is also a positive, BofA Securities said. Further, it said Reliance's oil-to-chemical business is well positioned to generate $9-9.5 billion EBITDA for the next three years, thus providing cash-flow stability. "We also consider <keyword id="6484187" type="General" weightage="20" keywordseo="ril" source="Orion">RIL</keyword> to be one of the very few Indian companies who have potential to be big in clean energy space mainly in solar, battery, electrolyser and fuel cells as they are setting gigafactories," it added. (ANI)

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