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Here are some concerns regarding Reliance Industries earnings

Here are some concerns regarding Reliance Industries earnings
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By Sonia Shenoy  Jan 23, 2023 4:01:50 PM IST (Updated)

Some brokerages have cut Earnings per Share (EPS) estimates for Reliance Industries but have retained their bullish stance on the stock.

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Reliance Industries Ltd., India's biggest company by market capitalisation, delivered December quarter net profit that was ahead of expectations.

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The company's other businesses, Jio and Retail also delivered numbers that were mostly ahead or in-line with expecations.
However, there have been some concerns raised on the street, resulting in brokerages cutting down their Earnings Per Share (EPS) estimates for the company.
Here are some of them:
Rise in Net Debt
For the December quarter, the company's net debt increased significantly to Rs 1.1 lakh crore, a rise of 18 percent compared to the previous quarter in September. The management attributed the rise in debt levels to capex spending for 5G rollouts and for ramping up retail operations.
The management said that the Rs 1.1 lakh crore of net debt is significantly lower than the annualised return that the company has.
"For us the focus will continue to be on managing the balance sheet conservatively while continuing to accelerate and execute on our growth plans," Joint CFO V Srikanth said on the company's post-earnings call.
Surge In Capex
Capex also saw an increase by 16 percent compared to the September quarter to Rs 37,600 crore. 5G services were rolled out in 134 cities across the country.
The company's retail business also continued its aggressive expansion strategy, adding another 6 million square feet, taking the total store count to 789 stores.
No Clarity On Tariff Hikes
For Reliance Jio, the unit's Average Revenue per User or ARPU improved by a rupee to Rs 178.20 from Rs 177.20. But the management did not share any clarity on any subsequent tariff hikes.
IIFL Securities in a note said that there is rising urgency around a tariff hike, especially with Vodafone Idea struggling to raise equity and the government's delay in converting interest during moratorium to equity.
The brokerage also stresses on the need for a tariff hike as the recently launched 5G networks and acquiring 5G spectrum will require significant investments.
EPS Estimates Cut
As a result, certain analysts have cut the company's Earnings Per Share estimates either for the current financial year or the next.
Nomura has cut its current year EPS estimate by six percent, in order to factor in a lower operating profit from Jio. However, it has retained its next year EPS estimates.
CLSA too has cut RIL's next year Earnings per Share estimate by eight percent on the back of delaying tariff hikes, rising interest rates and depreciation due to higher capex.
Jefferies believes that although retail revenue growth missed estimates, strong store additions and improving footfalls paint a strong growth outlook for the next financial year.
Despite the cut in EPS estimates, most analysts have retained their positive stance on the stock. Out of the 36 analysts that track Reliance Industries, 29 have a "buy" recommendation, four say "hold" while the other three have a "sell" rating.
Shares of Reliance Industries are having a volatile morning, currently trading 0.5 percent higher at Rs 2,454.70.
Disclaimer: Network18, the parent company of CNBCTV18.com, is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.
Note To Readers

Disclosure: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust that controls Network18, the parent company of CNBCTV18.com.

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