Reliance Industries Limited (RIL) has experienced notable volatility in its stock performance over the past year, dropping more than 22% from its peak of ₹1,608.95 in July 2024. Despite these fluctuations, global investment firm Goldman Sachs remains optimistic, maintaining a ‘Buy’ rating with a target price of ₹1,640 per share, suggesting a potential upside of 31% from its current valuation.

Stock Performance Insights

Over the last year, RIL’s stock has faced a 15% decline. However, recent months have shown signs of recovery. In March, the stock rebounded with a 6% gain after a 5% dip in February, while January saw a 4% increase. Goldman Sachs attributes this volatility to challenges within the sector but expresses confidence in RIL’s long-term growth potential.

Anticipating RIL’s Q4 Results

Looking ahead to RIL’s Q4FY25 results, Goldman Sachs forecasts that the company’s core EBITDA will remain stable compared to previous quarters. Investor attention will likely focus on the growth trends of RIL’s retail sector. Notably, Jio’s revenue is projected to rise 4% quarter-on-quarter, outpacing Bharti Airtel’s expected growth by approximately 200 basis points. Investors are also eager for updates regarding RIL’s retail expansion strategies for FY26 and advancements in its new energy initiatives.

• Solar Production: RIL plans to commence solar module production by the end of CY24.
• Battery Production: Aiming for 30GWh battery production in the latter half of CY25.

Energy Segment Outlook

Goldman Sachs predicts a sequential decline in RIL’s energy EBITDA for Q4 due to weaker refining and petrochemical margins. The refining sector has been affected by lower product crack spreads in Singapore and increased crude premiums in Asia. Recent tightening of U.S. sanctions on Russian oil has altered Middle Eastern crude sourcing, resulting in a rise in the Dubai-Brent differential from USD 1.0/bbl to USD 2.0/bbl. Official selling prices from Saudi Arabia also increased from USD 1.3/bbl to USD 1.7/bbl.

Despite these short-term challenges, the medium-term outlook remains positive, with expectations of nearly 1.0 mb/d of global refining capacity being permanently shut down by CY25E, which could support margins. However, petrochemical margins may take longer to stabilize due to supply-demand imbalances. RIL benefits from lower U.S. ethane gas prices, positioning it favorably against competitors.

Jio’s Growth Trajectory

Jio is poised for growth, driven by increasing tariffs and the adoption of fixed wireless access (FWA). For 4QFY25, Jio’s revenue is projected at ₹305 billion, representing a 4% sequential increase and an 18% year-on-year growth. Wireless revenues are expected to surge by 15% year-on-year, bolstered by a net addition of 3.3 million subscribers in 3QFY25. Analysts predict an acceleration in subscriber growth across both wireless and fixed broadband markets, enhanced by tariff increases and FWA expansion. Jio’s Average Revenue Per User (ARPU) is anticipated to reach ₹209 by March 2025, fueled by these favorable trends.

Goldman Sachs also emphasizes Jio’s expanding AI ecosystem, particularly its investments in companies like OpenAI, which are expected to serve as significant long-term value drivers.

Retail Business Growth Prospects

The retail division of RIL is projected to sustain its growth momentum, with non-connectivity sales expected to increase by 6.5% year-on-year in 4QFY25. This growth continues from a sequential recovery of 5.7% in 3QFY25, driven by restructuring within the grocery segment and a heightened focus on fashion, including new brand introductions like Yousta. Despite having one less trading day compared to last year, a steady improvement in margins is anticipated as business rationalization initiatives take effect.

Valuation Insights and Future Earnings Growth

Goldman Sachs notes that while RIL’s net asset value (NAV) discount has shown moderate improvement, it remains wider than historical averages. This is primarily due to subdued EBITDA growth in FY25 and ongoing earnings downgrades linked to sluggish retail expansion and low refining and petrochemical margins in the past three quarters.

Looking forward, Goldman Sachs forecasts an 18% growth in earnings for FY26, driven by:

• A 12% recovery in retail EBITDA (excluding connectivity) amid operational restructuring and improving economic conditions.
• A 24% acceleration in Jio’s earnings, aided by a likely tariff hike in the second half of CY25.
• An upswing in refining margins as around 1.0 mb/d of global refining capacity is expected to close permanently by CY25E.

The brokerage identifies a compelling risk-reward opportunity, with RIL’s stock currently trading near one standard deviation below its historical forward EV/EBITDA mean and close to its bear-case valuation scenario.

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