Reliance Industries Prospers Despite O2C Segment Challenges
Positive Outlook for Reliance Industries
UBS has recently reaffirmed its Buy rating on Reliance Industries, also known as RIL, along with a price target set at INR3,420.00. This suggests confidence in the company’s ability to navigate current market conditions. The firm predicts that for the second quarter of fiscal year 2025, Reliance's EBITDA will reach approximately Rs389 billion, which indicates a slight 5% decline from the same quarter last year. However, this figure remains stable compared to the previous quarter's performance.
Impact of Oil to Chemicals Earnings
This EBITDA estimate reflects the anticipated challenges faced by Reliance's Oil to Chemicals (O2C) segment, which is projected to see a drop in earnings. Nevertheless, this anticipated decline is expected to be offset by more robust results in consumer-driven segments such as Digital services and Retail.
Growth in Digital and Retail Segments
Reliance's Digital and Retail sectors are anticipated to emerge as key growth drivers. The EBITDA growth for the Digital sector, particularly Jio, is expected to increase by 12% year-over-year. Similarly, the Retail sector is forecasted to grow by about 8% in comparison to both last year and the previous quarter. Together, these consumer segments are projected to make up 54% of the company’s EBITDA, up from 50% in the initial quarter of the fiscal year.
Shifting Earnings Profile
This growing contribution from the Digital and Retail divisions illustrates a significant shift in Reliance's earnings profile. It indicates how consumer businesses are increasingly becoming a vital aspect of Reliance's financial landscape. The company has strategically positioned itself to enhance its focus on these sectors, showcasing adaptability in responding to changing market demands.
Moderation in O2C Segment
However, despite the positive developments in other sectors, the O2C segment is anticipated to witness a decline in earnings on a quarter-over-quarter basis. This downturn can be attributed to tightening refining and petrochemical spreads, an issue that poses challenges for many players in the industry.
Profit After Tax Predictions
UBS estimates that Reliance's consolidated Profit After Tax (PAT) for the quarter will be approximately Rs149 billion. This reflects a significant 14% reduction from the same time last year and a slight 2% dip from the preceding quarter. These projections highlight the mixed performance across Reliance's diverse offerings, where while some areas are thriving, others contend with obstacles.
Assurance from UBS
UBS's maintained price target and favorable rating towards Reliance Industries echo a continued optimism about the company’s future. Even with the potential fluctuations in different divisions, the performance in consumer sectors like Digital and Retail is viewed as a strong stabilizing force against the variabilities observed in the O2C sector.
Frequently Asked Questions
What is UBS's rating for Reliance Industries?
UBS has reiterated a Buy rating on Reliance Industries.
What is the projected EBITDA for Reliance in Q2 fiscal year 2025?
The projected EBITDA for Reliance Industries is Rs389 billion.
How are Digital and Retail sectors performing?
Digital and Retail sectors are expected to grow, with EBITDA increasing by 12% and 8% respectively.
What challenges is the O2C segment facing?
The O2C segment is expected to see a moderation in earnings due to lower refining and petrochemical spreads.
What does UBS estimate for Reliance's consolidated Profit After Tax?
UBS estimates Reliance's consolidated PAT to reach Rs149 billion, representing a decline from the previous year.
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