Reliance Industries: A Challenging Year with Opportunities for a Strong Rebound

Reliance Industries: Navigating Through a Rare Market Downturn in 2024

Reliance Industries Limited (RIL), a name synonymous with market dominance in India, is facing one of its toughest years in the stock market. After a decade-long streak of consistent calendar-year gains, the conglomerate finds itself on the verge of breaking this trend. The company’s shares have declined more than 20% from their peak in July 2024, leaving investors concerned.

With just three trading sessions remaining in the year, Reliance’s stock performance in December has added to the woes, declining over 5% month-to-date. This marks its longest monthly losing streak since the market crash induced by COVID-19.

A Technical Perspective: Analyzing the Decline

Riyank Arora, a technical analyst at Mehta Equities, observed that Reliance’s shares broke below their key support level of ₹1,217.25. This breakdown has been followed by what he describes as a “dead cat bounce,” a temporary recovery that lacks momentum.

Arora further highlighted critical resistance levels between ₹1,260 and ₹1,275. He anticipates that selling pressure may resume once the stock approaches these levels. In the short term, he forecasts the stock could drop further, targeting the ₹1,150 to ₹1,160 range in the coming weeks.

Fundamental Analysis: Why Analysts Remain Bullish

Despite the lackluster performance in 2024, many brokerages continue to express strong confidence in Reliance’s long-term potential. Notably, Motilal Oswal, Yes Securities, and Geojit Financial have all maintained their “buy” ratings on the stock.

Motilal Oswal’s Perspective

Motilal Oswal remains optimistic, assigning a target price of ₹1,580. According to the brokerage:

• Reliance has underperformed compared to broader benchmarks, Bharti Airtel, and its organized retail peers, despite delivering superior EBITDA growth.

• This underperformance is linked to higher capital expenditures in its Retail and Jio businesses, along with limited free cash flow (FCF) generation.

• Capital expenditure is believed to have peaked, and Reliance is projected to generate cumulative FCF of approximately ₹1 trillion between FY24 and FY27.

Motilal Oswal views Reliance’s current valuation as attractive, citing a favorable risk-reward ratio with a 1:10 skew. Using a Sum-of-the-Parts (SoTP) valuation, the brokerage assigns the following values to Reliance’s key segments:

• Oil-to-Chemicals (O2C) & Exploration/Production (E&P): ₹445/share based on EV/EBITDA multiples of 7.5x and 6x, respectively.

• Jio Platforms Limited (JPL): ₹530/share equity valuation.

• Reliance Retail Ventures Limited (RRVL): ₹600/share equity valuation.

• New Energy Business: ₹44/share, based on a ₹600 billion equity valuation.

• Disney Joint Venture Stake: ₹26/share based on transaction value.

Yes Securities and Geojit Financial

Yes Securities and Geojit Financial also maintain their positive outlook, with target prices of ₹1,500 and ₹1,516, respectively. Yes Securities highlights that the stock has reached a bear-case scenario, offering limited downside risk from current levels.

The Bigger Picture: Growth Potential Amid Challenges

Reliance’s underperformance this year does not overshadow its strong long-term growth prospects. The company’s diversified portfolio spanning energy, retail, telecommunications, and new-age businesses continues to offer immense potential.

Retail and Telecom Expansion

Reliance Retail Ventures Limited (RRVL) remains a powerhouse in organized retail, while Jio Platforms Limited (JPL) continues to drive digital transformation in India. Despite the capital-intensive nature of these segments, their growth trajectories position them as key drivers of the company’s future revenue and profitability.

New Energy Initiatives

Reliance’s foray into renewable energy through its New Energy Business aligns with global trends toward sustainability. This segment, though nascent, has the potential to become a significant contributor to the company’s overall valuation.

Investor Sentiment: What Lies Ahead

While the current sentiment around Reliance’s stock may appear cautious, the company’s fundamentals remain robust. The attractive valuation, coupled with improving FCF dynamics, offers a silver lining for long-term investors.

As 2024 draws to a close, the focus shifts to how Reliance can capitalize on its strengths to regain investor confidence in 2025. With the broader market environment likely to stabilize, the conglomerate has the tools to emerge stronger from this rare phase of underperformance.

A Resilient Giant in Transition

Reliance Industries’ journey in 2024 serves as a reminder that even the strongest market leaders face challenges. However, the company’s track record, coupled with its ambitious growth plans, underscores its resilience. For investors willing to take a long-term view, Reliance remains a compelling bet with significant upside potential.