Reliance Industries: A Hidden Gem in the Recovery Phase

A Sharp Correction Unlocks Value

Reliance Industries, India’s largest company by market capitalization, has seen its share price drop 22% from its 52-week high. This decline has resulted in a $50 billion reduction in its market capitalization since September 2024. The fall was driven by:

• A 13% decline in Earnings Per Share (EPS).

• A 10% drop in EBITDA consensus estimates.

The correction places RIL’s current valuation at its lowest level since the market upheaval caused by the COVID-19 pandemic in March 2020.

Analyst Consensus: A Compelling Opportunity

Market experts believe the current valuation offers an attractive entry point for investors. As Varun Saboo, Head of Equities at Anand Rathi, noted:

“Reliance stands to be a very interesting bet here. Valuations have become very attractive, and all businesses are performing well. We remain optimistic.”

Brokerage Insights and Share Price Targets

Morgan Stanley

• Target Price: ₹1,662 (31% upside potential).

• Rating: Overweight.

• Key Insights:

  • Refining Growth: Increased global capacity will drive free cash flow (FCF) growth, aligning with global demand expansion through 2027.

  • Retail Profitability: Expected to improve in FY26, driven by a rationalized store footprint.

Bernstein

• Target Price: ₹1,520 (22.5% upside potential).

• Rating: Outperform.

• Key Insights:

  • Telecom and retail are positioned to lead earnings growth.

  • Anticipates a robust recovery in the refining business, with Gross Refining Margins (GRMs) expected to improve from FY24’s $9 per barrel.

Jefferies

• Target Price: ₹1,690 (36% upside potential).

• Rating: Buy.

• Key Insights:

  • Projects 14% EBITDA growth by FY26 across all business segments.

  • Highlights low current valuations as a prime opportunity for investors.

Earnings Forecast and Key Growth Drivers

Telecom Growth

Reliance Jio is expected to achieve a 12% ARPU growth in the near term, driven by subscriber growth of 4-5%, even without tariff hikes.

Retail Rebound

The retail segment is poised for double-digit EBITDA growth, supported by strategic footprint rationalization, which has already reduced 3.6 million square feet over the last two quarters.

Refining Recovery

GRMs are forecasted to improve, aligning with global demand and tightening market conditions through 2027.

Free Cash Flow Boost

A steady-state EBITDA of $22 billion is projected to support free cash flow growth from FY25-27 as capital expenditure cycles taper.

Earnings Per Share Growth

Bernstein forecasts an approximate 20% CAGR in EPS growth through FY26, underpinned by:

• Improving FCF.

• Retail segment recovery.

• Potential business spin-offs.

Valuation and Risk-Reward Proposition

At 10.1x 1-year forward EV/EBITDA, RIL trades at a 17% discount to its three-year average, making it an appealing prospect for long-term investors.

Jefferies views RIL’s diversified operations and robust growth potential as key drivers for future performance.

Why Now Is the Time to Consider Reliance Industries

Reliance Industries stands out as a resilient player in the market, backed by a strong foundation in telecom, retail, and refining. With global brokerages unanimously optimistic and valuations at multi-year lows, RIL offers a rare blend of stability and growth potential.

For investors seeking an attractive entry point into a blue-chip stock with diversified revenue streams and significant growth prospects, Reliance Industries appears poised for a promising recovery phase.