JM Financial has recommended Reliance Industries Ltd. (RIL) as a top Diwali pick, with a target price of ₹3,500, reflecting a potential upside of 28%. RIL’s diversified business, spanning oil-to-chemicals, digital services, retail, and new energy, is expected to generate strong revenue and EBITDA growth over the next few years, supported by investments in digital and energy sectors.
Key Investment Rationales
- Jio – Doubling Revenue/EBITDA: RIL aims to double Jio’s revenue and EBITDA in the next 3-4 years. With over 130 million 5G subscribers, Jio plans to connect 1 million homes every month through FTTH and AirFiber services, with ambitions to add 1 million homes within the next 100 days. Jio is also developing Jio AI-Cloud and offering 100 GB of free cloud storage to users starting this Diwali.
- Retail – Doubling Revenue/EBITDA: RIL’s retail business, which includes 19,000 stores across 7,000+ cities and partnerships with over 4 million kirana stores, is expected to double its revenue and EBITDA over the next 3-4 years. With plans to expand further through its JioMart online platform, the retail division is expected to contribute significantly to RIL’s overall growth.
- New Energy – Major Potential in 5-7 Years: RIL’s new energy business is set to become a key driver of growth, with a focus on solar, energy storage, and bioenergy. The company has committed to an energy capex of ₹75,000 crore, which includes plans to scale up solar PV production, develop energy storage solutions, and establish electrolyser capacity. By 2026, RIL’s new energy segment is expected to rival the profitability of its oil-to-chemicals business.
Valuation and Recommendation
JM Financial maintains a ‘Buy’ rating on Reliance Industries with a Sum-of-the-Parts (SoTP) target price of ₹3,500. RIL’s diversified business model is positioned to generate a 15% compound annual growth rate (CAGR) in profits over FY24-FY27. Despite recent underperformance due to weak H1 earnings, RIL is expected to reverse course as digital, retail, and new energy segments gain momentum.
Financial Summary (FY24E-FY27E):
- Net Sales: ₹9,01,064 crore (FY24E) to ₹11,94,453 crore (FY27E)
- EBITDA: ₹1,62,233 crore (FY24E) to ₹2,27,655 crore (FY27E)
- EBITDA Margin: 18% (FY24E) to 19.1% (FY27E)
- Adjusted Profit After Tax (PAT): ₹69,621 crore (FY24E) to ₹1,05,677 crore (FY27E)
- Earnings Per Share (EPS): ₹102.9 (FY24E) to ₹156.2 (FY27E)
- Return on Equity (RoE): 9.2% (FY24E) to 10.9% (FY27E)
Key Risks
- Capex Impact on Debt: Continued high capital expenditure may result in rising net debt levels and limited free cash flow.
- Weak Subscriber Addition: Jio could face challenges from weak subscriber growth and limited ARPU hikes, impacting profitability.
- Execution Risks: RIL’s new energy projects carry execution risks, especially around achieving the required scale and profitability.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from JM Financial 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.
