RIL refining, petchem margins could rise as oil prices climb: JM Financial

Reliance Industries

• Reliance shares fell 4 percent this week, 8 percent in a month
• Diesel margin surge may boost Reliance's refining profits
• JM Financial maintains buy rating, target price at Rs 1,730

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Shares of Reliance Industries Ltd have fallen about 4 percent this week and nearly 8 percent over the past month amid rising geopolitical tensions in the Middle East, though analysts say the company may not be negatively impacted by the recent spike in crude and LNG prices.

According to a recent report by JM Financial, Reliance could in fact see near-term benefits from the rise in energy prices, supported by a jump in diesel refining margins and a potential improvement in petrochemical spreads.

The brokerage noted that diesel cracks have surged to about $35–$42 per barrel over the past two days from around $20 earlier. With diesel accounting for roughly 40–50 percent of the yield at Reliance’s refinery, sustained diesel cracks of around $30 per barrel could lift the company’s gross refining margin by $4–$5 per barrel.

JM Financial estimates that every $1 per barrel increase in Reliance’s gross refining margin could raise annual EBITDA by about Rs 45 billion, or roughly 2.2 percent, while also adding about Rs 29 per share, or 1.7 percent, to the company’s valuation.

However, the brokerage said the current spike in diesel cracks is unlikely to be sustainable. It also highlighted the possibility of government intervention through a windfall tax if margins remain elevated, similar to measures taken after the Russia-Ukraine conflict when the government capped diesel and petrol cracks at about $20 per barrel and imposed a windfall levy on excess margins.

Reliance could also benefit from stronger petrochemical margins. JM Financial said petrochemical product prices typically rise along with crude prices, while feedstock costs for Reliance are less sensitive because the company has limited dependence on crude-linked naphtha.

The company’s petrochemical feedstock mix consists of roughly 25 percent ethane, 50 percent off-gases and about 25 percent crude-linked naphtha, providing some insulation from higher crude costs.

The recent decline in Reliance shares appears largely linked to foreign institutional investor selling. FII ownership stood at 21.1 percent at the end of December 2025 compared with a peak of 28.3 percent at the end of March 2021.

At current market prices, JM Financial said the stock is trading close to its bear-case valuation of Rs 1,275 per share. The brokerage reiterated its buy rating with an unchanged target price of Rs 1,730.

JM Financial said the current share price reflects concerns about near-term weakness in retail EBITDA growth due to investments in quick commerce, but does not fully capture the expected 15–16 percent EBITDA growth in the digital business over the next two to three years, supported by a projected 10–11 percent ARPU CAGR.

The brokerage expects Reliance to deliver EPS growth of about 14–16 percent annually over the next three to five years. Key triggers include the potential IPO of Jio in the coming months, subject to regulatory approval for large IPO norms, and a possible telecom tariff hike afterward.

At current levels, the stock is trading at about 16.8 times FY28 estimated earnings compared with a three-year average of 23.9 times. Its FY28 estimated EV/EBITDA multiple stands at 8.2 times versus a three-year average of 11.9 times, JM Financial said.

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