The year 2026 has been difficult so far for the investors of Reliance Industries. There is a reason for this also. In the current year, the company’s shares have seen a decline of more than 15 percent. Due to which the investors of the company have suffered a loss of approximately Rs 3.53 lakh crore. Now all eyes are on whether the June quarter results can help bring back investor confidence.
RIL shares have been under pressure for most of the year. The reasons for this are – slowness in retail growth, weakness in the oil and gas business, pressure on the refining business (which is a major source of income for the company) and no strong trigger from the company’s consumer business. Recently the stock was trading about 20 per cent below its 52-week high (Rs 1,611.20 on January 5).
The concern is not just about one business. Reliance’s valuation is now done on the basis of four major business segments. Which includes oil-to-chemicals, geo, retail and upstream oil and gas. In recent quarters, all these segments together have not performed well. In the last few quarters, the company has not been able to meet profit estimates.
Retail earnings have been slow and the oil-and-gas segment has been impacted by lower production and lower prices. Retail margins have also been affected due to discounts given during festivals, investment in hyper-local delivery startups and the impact of the new labor code.
The oil-to-chemicals business, which has long been Reliance’s biggest source of income, has also faced many challenges. In April, Reuters Breaking Views had said that the performance of Reliance shares has been weak compared to the market. The reasons for this were concerns like impact of tensions with Iran on refining, windfall tax, higher freight costs and competition from China.
Will Q1 results drive the stock higher?
The answer depends on whether Reliance’s quarterly performance is better than simply being ‘stable’ or not. Strong performance of O2C (oil-to-chemicals) can help in this. Jio can also help in earning. But for a major change in the rating of the stock (re-rating), investors need better retail margins, a clear timeline of Jio IPO and the assurance that the weakness in upstream (oil-gas production) can be handled.
In this environment, first quarter results will be important. Brokerage firms expect Reliance’s quarterly performance to be stable, with recovery in O2C and continued growth in digital services playing a key role. Retail performance may remain sluggish and the oil and gas segment may come under pressure due to lower production.
Some degree of pessimism has already entered the stock. If the results show improvement on every front and the management’s stance remains credible, then RIL shares may see a relief rally. If growth again remains dependent on O2C only and retail remains sluggish, the market may wait longer before taking a bullish stance.
O2C can play an important role
- O2C business is expected to be the core driver in this quarter. Kotak Equities expects Reliance’s consolidated EBITDA to grow by 8.4 per cent year-on-year and 5.4 per cent quarter-on-quarter. It expects O2C EBITDA to grow by 12.1 percent year-on-year and 12 percent quarter-on-quarter.
- Kotak expects this segment to benefit from strong SEZ refinery earnings, absence of windfall tax impact, US ethane-based petrochemicals and weak rupee.
- Jefferies has a more positive view on this segment. It expects consolidated EBITDA to grow by 10 per cent year-on-year, with O2C EBITDA growing by 20 per cent. The brokerage expects the business to benefit from better petrochemical spreads and higher gross refining margins for the SEZ refinery.
- Yes Securities expects refining throughput to decline 7.2 percent year-on-year and 2.3 percent quarter-on-quarter to 16.8 million metric tons. It expects gross refining margin to be $10 per barrel.
- JP Morgan said refining crack and petrochemical margins were very strong in the first quarter. It said that during the quarter, Reliance had closed one of its four crude distillation units for maintenance, but the weakness of the rupee may offset the loss in volumes.
- Motilal Oswal expects standalone EBITDA to be Rs 14,800 crore, which is 12 percent higher year-on-year. He expects production for sales to be 17.7 million metric tons, which is 2 percent more than a year ago.
Jio will continue to support
Good growth is expected from digital services. Nuvama expects digital EBITDA to grow 11 percent year-on-year and 2 percent quarter-on-quarter, driven by higher average revenue per user and new subscribers.
Nuvama expects ARPU to grow 3 percent year-on-year and 1 percent quarter-on-quarter, while subscriber base is expected to grow 7 percent year-on-year and 2 percent quarter-on-quarter. YES Securities expects telecom ARPU to be Rs 215.4 and number of subscribers to be 531.6 million.
For investors, the things said about Jio will be as important as the figures. The market will keep an eye on information regarding future tariff increase, earnings from 5G, broadband growth and Jio’s listing roadmap. Reports earlier this year said that Jio is preparing for a big IPO, and the listing is being considered as a possible trigger for Reliance’s valuation.
Retail still has to prove itself
Reliance Retail remains a matter of significant concern. Kotak expects retail EBITDA to grow 5.6 percent year-on-year but fall 2.6 percent quarter-on-quarter. He expects about 12 percent growth in retail revenue.
Nuvama expects retail EBITDA to grow 3% year-on-year due to margin pressure and weak consumption trends. Jefferies expects retail revenue to grow by 11 percent and EBITDA to grow by 8 percent. YES Securities expects retail revenue to grow 16 per cent year-on-year to Rs 97,700 crore, but decline 0.8 per cent quarter-on-quarter.
Retail business was once considered the trigger for big re-ratings for stocks. Now investors want evidence of profitable growth. Information related to new store openings, footfall, grocery performance, fashion and lifestyle sales and margins will be closely monitored.
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