The focus is on the increasing debt of Reliance

The Oil to Chemicals (O2C) segment is the primary culprit here, with earnings before interest and taxes (Ebit) down 46% sequentially. The performance of the segment was impacted due to introduction of special additional excise duty on transport fuel. Weak polymer margins also dragged down the segment’s profits. To that extent, RIL’s consumer businesses, retail and telecom, outperformed relatively well, offsetting the weakness in O2C. The footfall in the retail segment was 23% higher as compared to pre-Covid levels. The average revenue per user in the telecom segment was 177.2 Q2 Vs. In 175.7 in Q1.

However, this did not impress investors. RIL shares fell 1.5% on Tuesday 2,441.55. Rising debt and capital expenditure (capex) are a matter of concern. RIL’s consolidated net debt stood at Rs 93,253 crore as on September 30, as against Rs 57,655 crore as on June 30. Analysts at JP Morgan India say net debt is at a two-year high. The capex in the second quarter was Rs 32,534 crore as against Rs 31,442 crore in the first quarter. The increase in net debt can be attributed to dislocation in energy markets, unfavorable foreign exchange movement and higher working capital along with payment of the first installment of 5G spectrum received during the quarter, the company said.

Since FY19, RIL has delivered fast through infrastructure investment trusts, stake sale in consumer business and rights issue. Thereafter, “RIL is re-entering a deeper investment cycle with its ambitious new commerce plans and green energy aspirations. The company’s capital expenditure and debt are already rising. RIL’s new energy initiatives are long-standing and have substantial performance risks,” he said in a report on October 22.

RIL’s rising debt levels as well as a relatively weak outlook for its O2C segment mean that the triggers for meaningful outperformance in RIL stock appear limited. “Prospects for the rest of FY23E are muted on account of sudden decline in Asian gross refining margins (up to $4.05 per barrel pppost to $29.5 per barrel in Q1 on October 21, 2022), muted petchem spreads and overhanging ICICI Securities analysts said in a report on October 23, “Of the additional export duty imposed on July 1, 2022.

Meanwhile, the company has announced the demerger of its financial services venture, which will be renamed as Jio Financial Services Ltd (JFSL) and will be listed on stock exchanges. “We view this positively, and while we don’t see it as a harbinger of a potential demerger of various consumer businesses, it may be a catastrophe to shareholders in India’s digital fintech business,” analysts at JP Morgan India said in a report on 22. But gives a play.” october. However, RIL may face regulatory challenges here. Analysts have estimated a valuation of JFSL at Rs 1 trillion based on the market capitalization of RIL.

Analysts say RIL’s return ratio remains low. Given the increasing pace of capital expenditure, a significant improvement in the company’s return profile cannot be in a hurry.