Reliance Industries surges over 4%; brokerages up target price

Kotak said it has maintained a "Buy" rating on RIL, citing several near- to medium-term triggers, including a moderation in capex intensity, continued deleveraging, recovery in the O2C and retail segments, the ramp-up of Homes and Enterprise offerings in R-Jio, and the potential upcoming IPOs of the telecom and retail businesses.

The key positive for RIL’s Q3 performance was the improvement in its retail business, with EBITDA rising 9.1 percent year-on-year (YoY) and 16.7 percent quarter-on-quarter (QoQ), exceeding estimates by 8 percent. The O2C segment (EBITDA up 2.4 percent YoY, 16 percent QoQ) and E&P segment also performed well, coming in 5–7 percent above expectations.

However, the weak performance of the telecom segment partly offset these gains, as the benefits from the July 2024 tariff hike have been slow to materialize. Overall, reported EBITDA increased 17 percent YoY and 3.1 percent QoQ but fell 4.4 percent short of estimates. Capital expenditure for Q3 remained high at Rs 323 billion, though it was 5 percent lower QoQ. Net debt remained stable at Rs 1.1 billion.

RIL’s consolidated Q3 EBITDA stood at Rs 438 billion, up 8 percent YoY and 12 percent QoQ, beating analyst estimates by 3 percent. The organized retail segment delivered an EBITDA of Rs 68 billion (up 9.1 percent YoY, 16.7 percent QoQ), which was 8 percent above expectations. Within retail, B2C grocery showed particularly strong growth, with revenue up 37 percent YoY.

The O2C segment reported an EBITDA of Rs 144 billion (up 2 percent YoY, 16 percent QoQ), exceeding estimates by 7 percent. The E&P segment recorded an EBITDA of Rs 56 billion (down 4.1 percent YoY, up 5.2 percent QoQ), 5 percent ahead of estimates.

Analysts noted that following a 17 percent correction in the stock price during Q3FY25, RIL’s valuation has become more attractive. The telecom outlook remains robust, and after the restructuring, the retail segment is expected to emerge stronger, while O2C and Oil & Gas operations remain stable.

JM Financial expects RIL’s net debt to gradually decline, as capital expenditure (capex) moderates, with annual spending forecasted at Rs 1.2 trillion–1.4 trillion, down from Rs 2.3 trillion in FY23 and Rs 1.3 trillion in FY24. This capex will be fully funded by a steady increase in internal cash generation. Additionally, RIL’s guidance to keep reported net debt-to-EBITDA below 1x (0.66x at the end of 3QFY25) provides further comfort. At the current market price, RIL is trading close to its bear-case valuation of Rs 1,230.

JM Financial also anticipates a strong 14–15 percent EPS CAGR over the next 3–5 years, driven by Jio’s ARPU, which is expected to rise at 11 percent CAGR from FY24–28, supported by favorable industry dynamics, future investment needs, and the avoidance of a duopoly market. Clarity on the timeline and valuation for Jio’s listing could act as a potential near- to medium-term catalyst. At the current market price, the stock is trading at a FY27E P/E of 16.3x (3-year average: 24.7x) and a FY27E EV/EBITDA of 8.6x (3-year average: 12.6x).

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