Can Reliance Industries shares hit Rs 3,250? What UBS, others say ahead of December quarter results

Reliance Industries is expected to report a marginal fall in year-on-year (YoY) profit in the December quarter on a double digit growth in sales. Profit growth, however, will be strong sequentially, led by higher gross refiling margins (GRMs) -- adjusted for windfall tax, and increased gas prices. Telecom and retail businesses are expected to do well, said analysts.

What's in the price?

UBS said investors are not pricing in retail's revenue growth potential from rapid store expansion, e-B2B revenue growth and private labels. That said, it believes the consensus seem to underappreciate the upcoming integrated manufacturing ecosystem for new energy business.

Data showed 2022 was the first time when Nifty50 gained for the seventh year in a row. Reliance Industries was only among the two stocks which delivered positive returns in each of the seven years. The other was HDFC Bank.

The brokerage has a 12-month target of Rs 3,250 on the stock. Prabhudas Lilladher, which has also come out with Q3 projection for Reliance Industries, has a price target of Rs 2,909 level. Nuvama Institutional Equities has a target of Rs 3,205 on the stock.

What are Q3 projections?

Going into earnings season, UBS sees Reliance's consolidated profit at tax for December quarter at Rs 15,100 crore, down 4 per cent YoY, but up 10 per cent sequentially. It said the stock is pricing in near-term petchem weakness and overhang of export taxes, but not pricing in retail revenue growth potential or upside to new energy opportunities.

The brokerage sees revenue for Reliance Industries rising 21 per cent YoY (down 3 per cent QoQ) to Rs 2,23,400 crore.  Ebitda is seen rising 15 per cent YoY to Rs 34,100 crore.

Prabhudas Lilladher said Reliance Industries' results will be better, given higher GRMs. The brokerage is factoring in lower windfall tax impact and higher gas prices of $12.6 per mmbtu against $9.9 in H1.

It estimates refining throughput for RIL at 16.5 MTPA against 16.2MT in the September quarter.

"Petchem profitability will be mixed as while PE spreads have recovered sequentially; PVC and PP margins will be lower. We expect steady Jio performance despite higher finance charges post spectrum auctions, while retail segment profitability should be resilient," it said.

Nuvama Institutional Equities expects Reliance consolidated Ebitda to rise 10 per cent YoY (up 5 per cent QoQ) on strong gas (prices up 2 times YoY), retail and digital segment, offset by weak O2C. It sees retail segment Ebitda to grow 25 per cent YoY on higher footfall;  JIO's Ebitda is seen rising 31 per cent YoY on high ARPU (18 per cent YoY) and 3 per cent YoY rise in subscriber base.

"O2C to remain subdued on weak petchem (polymer margins down 46 per cent YoY) offset by modest refining. Windfall tax on HSD/ATF/MS export in Q3 shall limit incremental benefits on elevated GRMs," it said.

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