Reliance share price jumps 8% in 10 sessions; will this upward momentum sustain?

Shares of Reliance Industries, India’s largest company by market capitalisation, have rebounded strongly in recent sessions, climbing 8% in the last 10 trading days to ₹1,322 apiece. This recovery is notable as the stock faced heavy selling pressure between July and October, during which it lost 20% of its value.

According to domestic brokerage JM Financial, the recent weakness in Reliance Industries’ stock can be attributed to a 5-6% downgrade in consensus FY25 EBITDA estimates, driven by weaker-than-expected performance in the O2C (oil-to-chemicals) and retail segments during H1FY25, along with limited clarity on the timeline for Jio’s listing.

The decline was further compounded by accelerated selling from foreign institutional investors (FIIs). FII holdings in the company fell by 112 basis points in October and by 169 basis points over the July-October period, bringing their stake down to 22.5% as of October 2024.

Despite this, the brokerage maintained its ‘buy’ rating on the stock and retained its earnings estimates, although it revised the target price downward by 4% to ₹1,660 (from ₹1,735). This adjustment reflects a conservative approach of assigning zero value to JioMart (previously valued at ₹79/share) due to potential disruptions from the quick commerce segment impacting the opportunity to digitize kirana stores.

The brokerage reiterated its confidence in the stock, citing expectations of a gradual decline in net debt as capex moderates and becomes fully funded by increasing internal cash generation. Reliance’s guidance to keep reported net debt to EBITDA below 1x (currently 0.75x as of 2QFY25) also provides reassurance.

Clarity on the timeline and valuation of Jio’s listing could act as a near- to medium-term catalyst, said JM Financial. Furthermore, the brokerage expects the company to achieve a robust 14-15% EPS CAGR over the next 3-5 years, with Jio’s ARPU expected to grow at an 11% CAGR during FY24-28, driven by structural industry dynamics, future investment needs, and efforts to avoid a duopoly market—a significant digital leap for the company.

Additionally, the potential listing of Jio and retail businesses in the coming years could unlock value and lead to a re-rating of the stock, it added. 

Petchem margin continues to be muted, but refining margin outlook is robust

The petrochemical margin outlook remains subdued due to oversupply, especially from China, amidst weak global demand growth. However, the brokerage expects the refining margins to remain strong, driven by robust global oil demand growth of 0.9 mmbpd in 2024 and 1.0 mmbpd in 2025, despite concerns over China’s demand, with refining capacity additions trailing demand growth.

It said the company is well-positioned to navigate macroeconomic uncertainties, leveraging its integrated and complex facilities, locational advantages, and expertise in feedstock sourcing and product placement.

In its exploration and production (E&P) segment, the brokerage expects earnings to remain steady, supported by near-peak volumes and gas realisations around USD 9-10/mmbtu.

JPMorgan, Morgan Stanley, Citi, and CLSA continue to remain bullish on the stock

Global brokerage firms, including JPMorgan, Morgan Stanley, Citi, and CLSA, also remain bullish on Reliance Industries, reflecting optimism about the company’s recovery in refining margins as a key driver.

Morgan Stanley has reiterated its target price of ₹1,662 per share, while JPMorgan has a target price of ₹1,468 per share. 

Citi upgraded its rating on the stock to ‘buy’ and raised its target price to ₹1,530 per share.

Citi expects an improvement in refining margins, driven by China’s reduced export competitiveness. It noted that Jio is well-positioned to benefit from future tariff hikes, potential improvements in data pricing, and better monetisation of its 5G services. 

However, the brokerage flagged that softness in the retail segment could persist for a few more quarters, prompting a slight revision in its estimates for that business.

Similarly, CLSA has also maintained its ‘outperform’ rating on the stock, with a target price of ₹1,650 per share. The brokerage highlights Reliance Industries’ new energy business, valued at $40 billion, which it believes is being overlooked by the market.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.