Reliance Q2 Results Review: Net profit drops but brokerages remain bullish with up to 26% upside potential

Reliance Industries Ltd. (RIL), India's oil-to-telecom-to-retail giant, reported almost 5 percent year-on-year (YoY) decline in its consolidated net profit for the second quarter of FY25. Despite a challenging quarter due to weakness in its oil-to-chemicals (O2C) segment, the company's overall performance was supported by its digital services and upstream businesses, signaling a resilient outlook according to market analysts.

Post the earnings announcement, the stock fell as much as 1.1 percent to its day's low of ₹2713.55 in opening deals but then recovered to turn flat.

Performance Overview

RIL’s consolidated net profit for Q2FY25 stood at ₹16,563 crore, down from ₹17,394 crore in the corresponding quarter of the previous year. Meanwhile, on a sequential basis, its net profit rose 9.4 percent from the preceding three months to ₹16,563 crore. This marks the third straight quarter of declining profits on a Y-o-Y basis, of which the last two were primarily due to its weak oil-to-chemicals (O2C) business.

RIL's total income rose 0.65 per cent to ₹2,40,357 crore from ₹2,38,797 crore in the corresponding quarter last year.

Reliance Industries reported consolidated earnings before interest, tax, depreciation, and amortization (EBITDA) of ₹43,934 crore for the second quarter, reflecting a 2 percent decrease year-on-year. The company's EBITDA margin for the quarter stood at 17 percent, slightly lower than the 17.5 percent recorded in the same period last year.

RIL’s outstanding debt increased to ₹3,36,337 crore by the end of the quarter, compared to ₹2,95,687 crore in Q2FY24.

Mukesh Ambani, Chairman of Reliance Industries, highlighted the resilience of the company’s diversified business portfolio. He noted that the company's digital services and upstream businesses experienced robust growth, which helped offset weaker contributions from the O2C business. Ambani acknowledged that the O2C segment was impacted by unfavorable global demand-supply dynamics, while the digital services segment benefited from revised telecom tariffs and the scale-up of homes and digital services businesses.

Ambani also mentioned the oil-to-chemicals segment’s improvement, with higher volumes and increased domestic product placement. However, lower gas price realizations led to a 6 percent decline in revenue from the oil and gas segment.

Brokerage Views and Ratings

Several brokerages have weighed in on RIL's Q2FY25 performance and the company's future prospects.

HDFC Securities reaffirmed its "ADD" rating on RIL, with a price target of ₹3,350 per share, indicating a 22 percent upside potential. The brokerage’s optimism is based on three main factors: a recovery in the O2C business, growth in the digital business driven by improved average revenue per user (ARPU) and subscriber additions, and potential value unlocking in the digital and retail segments. HDFC Securities also noted that RIL's Q2FY25 EBITDA of ₹391 billion (-4.7% YoY, +0.8% QoQ) exceeded their estimates, largely due to the strong performance of the telecom segment.

Nomura has a "buy" rating on RIL with a price target of ₹3,450, indicating an almost 26 percent upside potential. The brokerage trimmed its FY25-FY27 EBITDA estimates by 5-6 percent, citing short-term challenges, but remained optimistic about the company's long-term growth prospects. Nomura emphasized that upcoming tariff hikes for Jio, continued growth in retail, and the commencement of new energy operations by March 2025 would be key growth drivers for RIL in the future.

CLSA maintained its "outperform" rating on the stock with a price target of ₹3,300, implying an over 20 percent upside potential. The brokerage noted that the stock had dropped over 15 percent recently, bringing it closer to conservative valuations. Key triggers for the stock in the next 12-15 months, according to CLSA, include an increase in Airfiber subscribers, the start of new energy projects, and the potential initial public offering (IPO) of Jio.

UBS also retained its "buy" recommendation on RIL with a price target of ₹3,250, which implies an over 18 percent upside potential. UBS lowered its EBITDA estimates for FY25-FY27 by 5-10 percent, but it pointed out that future growth drivers such as 5G adoption, home connects for digital services, and new energy business opportunities remained intact. Additionally, UBS believes that lower capital expenditure could drive deleveraging for RIL.

JPMorgan maintained its "overweight" stance on Reliance with a price target of ₹3,125 (14% upside potential), despite cuts to its earnings per share (EPS) estimates. The brokerage anticipates that RIL’s telecom business will continue to grow, and it expects recovery in the refining, petrochemicals, and retail segments. JPMorgan highlighted that RIL's valuations remain supportive of further growth.

Despite facing challenges in its core O2C business, Reliance Industries continued to demonstrate its resilience, aided by strong performances in its digital services and upstream segments. Brokerages remain largely positive on the company's long-term prospects, driven by growth triggers such as Jio’s tariff hikes, new energy projects, and further value unlocking in the digital and retail businesses. While near-term challenges may persist, RIL's diversified business model positions it well to navigate economic headwinds and capitalize on future opportunities.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.