Reliance Industries (RIL) is likely to witness higher profit growth in its consumer businesses—telecom and retail—from next year vis-à-vis its traditional oil refining and petrochemical business. The higher growth will help consumer businesses leapfrog RIL’s standalone business, which is oil to chemicals (O2C). The twist in the tale is that the conglomerate built the telecom and retail verticals using the cash flow from O2C.

Analyst community expects a reduction in capital expenditure at telecom and retail, while the businesses improve cash flow aided by booming margins. According to a report by Bernstein Research, Reliance Jio’s focus will shift to monetisation of assets with the completion of 5G rollout and it will lead to moderation in capital expenditure. “We expect around 15% CAGR revenue growth for Jio over the next 3 years with a strong 11% plus tariff hike in FY25. Market share gains will continue as Jio reaches around 500 million subscribers and around 47% revenue share by FY25,” it said.

At the retail front, the performance of the grocery business remains solid for Reliance Retail Ltd (RRL) supported by price hikes of staples and recovery in general merchandise demand, says JP Morgan in its report. Robust performance in fashion and lifestyle despite muted category demand and the improving traction for grocery in quick commerce channels is also helping the company. “The operating leverage is aiding Reliance Retail’s margin expansion,” says JP Morgan.

The retail business grew 24% year-on-year which Bernstein believes is sustainable with store expansion and a higher eCommerce mix. “We see normalisation in retail capex with a focus on improving revenue per square feet as older stores mature,” the analysts said.

While consumer businesses, which were started/ramped up in the last five years, see a better profit leeway for the next few years, O2C earnings growth is likely to end flat. The volume growth and the margin expansion are unlikely to improve in the petrochemicals business this year. The earnings growth will stall at current levels until 2026-27 when additional capacity comes online, says Bernstein. However, there is hope in the oil and exploration and production business. The volumes are likely to peak in the next 12 months while the company continues to build solar and battery-making capacity.

In the December quarter, RIL’s standalone business (majorly O2C and E&P) posted a net profit of ₹9,924 crore, which went up 20.1% Y-o-Y. Net profit from Jio Platforms Ltd (JPL) increased by 11.6% to ₹5,445 crore, while RRL’s jumped 31.9% to ₹3,165 crore. The consumer businesses together registered a profit of ₹8,610 crore.

However, the energy business will get a boost with the commissioning of the solar and battery manufacturing. RIL announced an investment of ₹75,000 crore over 3 years for constructing four Giga factories to make integrated solar PV modules, electrolyzers, fuel cells and batteries to store energy from the grid. The site of these plants is located at the new 5,000-acre Green Energy Giga Complex in Jamnagar. RIL has already invested around ₹20,000 crore for the acquisition of technology, forming partnerships and construction of manufacturing facilities. Analysts expect RIL to focus on a phased ramp-up of its new manufacturing facilities in the next two years.

The company will unveil 10GW solar PV and module manufacturing plant at Jamnagar this year with the company aiming to scale the plant to 20GW annual capacity by 2026. The solar giga factory will include the manufacturing of PV modules, cells, wafers, polysilicon and glass. The company will also start its 5GWh battery cell-to-pack plant in 2024 with plans to scale up to 50GWh by 2027. Bernstein estimates RIL’s new energy business to achieve $10 billion revenue, which represents 40% of the market share, in 2030.
RIL’s share price jumped 8.8% in the last month and closed at ₹2,818 on Tuesday.

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