Reliance Industries stock in bear grip but CLSA sees 30% upside on this key growth trigger. Time to buy?

For investors in Reliance Industries (RIL), foreign brokerage CLSA’s recent prediction of a 30% upside in the stock might come as a respite, especially amid the sell-off in the counter, which has pushed it into bear territory.

RIL’s share price has declined 22% from its 52-week high of ₹1,608.95 as the Indian stock market faces significant selling pressure. However, CLSA believes that the stock is offering an attractive entry point to play important catalysts in 2025, as it maintained its ‘outperform’ rating on India’s most valuable stock, with a target price of ₹1,650.

Key Upside Trigger

The reason behind CLSA’s bullish stance is RIL’s new energy business worth $40 billion, which it believes the market is ignoring.

As part of its new energy strategy, Reliance aims to set up a fully integrated 20GW solar gigafactory by 2026/2027, beginning with the launch of cell-to-module production in the next 3-4 months.

According to CLSA’s estimates, the solar business could have earnings before interest, tax, depreciation, and amortisation (EBITDA) of $1.7 billion over the next four to five years and a value of over $30 billion, which is at a discount to the replacement cost valuation of recently listed Indian solar PV manufacturers.

Reliance’s stock is trading within 5% of our rainy-day valuation, in which we assign zero value to the new energy business, suggesting that it is priced attractively to play triggers in 2025 like the start of new energy capacities, the return of promising growth in retail, a ramp-up in Airfiber subscribers, and a potential Jio IPO, said the brokerage.

As per CLSA’s blue-sky scenario, the stock could even rally up to 70%.

RIL’s solar energy foray assumes more significance as India has pledged to raise its solar capacity to 280GW by 2030, from the current 91GW, requiring annual installations of 20-50GW going forward.

CLSA expects top Indian players to double their module manufacturing capacity in the next three years to 135GW per annum, with 25-45% being backward integrated—enough to also access attractive export markets like the US, it said. While China dominates the world’s supply chain, accounting for 90% of the worldwide generation capacity, significant tariff restrictions on imports of Chinese PV products have opened the US market for non-China exporters like India.

Amid this backdrop, Mukesh Ambani-led Reliance has set itself an ambitious target to scale up the new energy business to the size of its oil-to-chemical (O2C) business (US$7.5bn EBITDA in FY24) in the next 5-7 years.

However, the brokerage cited potential negative triggers such as delay in the start of new energy projects, extension of low growth for Reliance Retail beyond 2-3 quarters, and lack of proof of monetisation of its 5G capex.

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.