HDFC Securities has selected Reliance Industries Ltd. (RIL) as a key Diwali stock pick for Samvat 2081, recommending a buy range of ₹2,447-2,716 and setting a target price of ₹3,243. The company’s growth is expected to be powered by advancements in its digital, retail, and new energy segments.
About the Company
Reliance Industries Ltd. is India’s largest private-sector enterprise, involved in a wide range of industries, including oil and gas exploration, refining, petrochemicals, retail, telecom, and digital services. The company also focuses on green hydrogen and renewable energy. Globally, RIL is the world’s largest integrated polyester producer and one of the top petrochemical producers.
Valuation and Recommendation
RIL is poised to leverage significant technological advancements in its telecom, retail, and new energy businesses, along with strong growth in digital services. The company aims to double its EBITDA in the next five years, driven by opportunities in 5G, artificial intelligence (AI), data centers, and energy storage solutions. HDFC Securities recommends buying Reliance stock in the ₹2,447-2,716 range, with a target price of ₹3,243 (23.5x FY26E EPS) by next Diwali.
Key Financials (FY22-FY26E):
- Net Sales: ₹700,000 crore (FY22) to ₹1,268,100 crore (FY26E)
- EBITDA: ₹110,500 crore (FY22) to ₹210,100 crore (FY26E)
- Profit After Tax (PAT): ₹58,400 crore (FY22) to ₹93,500 crore (FY26E)
- Earnings Per Share (EPS): ₹86.4 (FY22) to ₹138 (FY26E)
- Return on Equity (RoE): 7.9% (FY22) to 10.3% (FY26E)
Key Triggers
- Digital Growth: RIL’s telecom arm, Reliance Jio, added the highest number of wireless subscribers in recent months. With the recent tariff hike, the average revenue per user (ARPU) is expected to increase from ₹181.7 in Q1 FY25 to ₹200-205 by FY25. R-Jio is also expanding its revenue streams with investments in home broadband, digital TV, and enterprise services, supported by a large-scale AI infrastructure.
- Retail Expansion: Reliance Retail operates over 18,946 stores in more than 7,000 cities and serves 327 million registered customers as of September 2024. The company will continue expanding its product lines across grocery, FMCG, electronics, fashion, and other categories.
- Energy and Chemicals Growth: RIL is expanding its oil-to-chemical business, increasing capacity at its Dahej and Hazira facilities. It is also focusing on renewable energy with solar, battery, and hydrogen projects, and plans to add at least 100 GW of solar capacity by 2030.
Key Concerns
- Economic and Regulatory Risks: RIL is vulnerable to fluctuations in oil prices, currency movements, and regulatory changes in the oil, gas, and telecom sectors. Any negative developments in these areas could impact the company’s growth trajectory.
- Intense Competition in Telecom: The telecom sector is capital-intensive, and RIL faces intense competition in setting up infrastructure and acquiring spectrum, which could affect profitability.
- Refining Margins and Energy Costs: RIL’s refining margins have been weak over recent quarters due to lower spreads, and any further decline in refining margins could impact the company’s earnings.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
