For RIL, a strategic partner for new energy business may be the next catalyst for value unlocking
Retail core Ebitda margin (excluding investment income) slid for the third consecutive quarter to 8.2% after hitting a peak of 8.5% in Q2FY25. With margin being almost flat year-on-year, absolute Ebitda increased 11% year-on-year to ₹6,044 crore, with similar growth in revenue to ₹73,720 crore.
Average sales per store and per square foot grew 7% and 16% year-on-year, which should have aided Ebitda margin improvement with the operating leverage kicking in. The flat Ebitda margin could be indicative of discounts to counter competitive intensity and also rising operational costs. Some of the cost impact could be due to JioMart turning aggressive to counter quick commerce rivals as its hyperlocal deliveries soared by 68% QoQ and 175% year-on-year in terms of daily orders.
Read more: Reliance Q1 results: RIL posts record profit despite crude weakness, sets stage for clean energy future
Q1FY26 should be the peak growth for the telecom vertical as growth in the subsequent quarters would taper off, given that the effect of tariff hikes taken in July 2024 won't be there. Average revenue per user (Arpu) increased just 1% sequentially in Q1 to ₹208.8, which could be due to higher Arpu from new customers of Jio AirFiber that provides fixed wireless access (FWA) internet connectivity to homes and businesses using 5G technology. Even the cheapest monthly plan of Jio AirFiber costs ₹600, which is thrice the minimum mobile recharge plan. Thus, incremental AirFiber subscribers help in pushing up the overall Arpu.
Telecom customer base grew 2% QoQ to 498 million, which includes Jio AirFiber customers in addition to the mobile subscribers. In Q1, Jio became the largest FWA service globally with a subscriber base of 7.4 million.
Resilient O2C business
RIL's O2C business was resilient in the wake of a turbulent operating environment globally and also the effect of a planned shutdown for maintenance. The production meant for sale fell 2% year-on-year to 17.3 million tonne, but Ebitda increased 11% to ₹14,511 crore. This was because of higher refining margins, mainly on diesel and petrol that grew 7% and 16%, respectively. Lower naphtha prices led to better petrochemical margins for polypropylene and other derivatives.
While existing businesses are steady, there is no update on a separate listing of telecom and retail businesses. However, investors could be surprised as RIL's management has hinted at roping in a financial or strategic partner in its new energy business once the project is operationalized. The project, encompassing photovoltaic solar cells and battery energy storage to green hydrogen, is likely to be fully operational in the next 4-6 quarters.
Read more: The king's comeback: Why Reliance Industries is beating the market
Unlike telecom or retail, the new energy business of RIL does not have sizable listed companies for comparison on valuations. While the business is valued separately by analysts in their sum-of-the-parts (SoTP) valuation for RIL, there could be an upside to the valuation if a new partner is roped in at a high price.
RIL's shares trade at 25x its FY26 estimated earnings, based on Bloomberg consensus. If earnings growth continues at the same pace of 20% as seen in Q1FY26, then the valuation does not appear expensive.
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