 "Reliance Industries, RIL")
As India's largest company by market capitalisation gears up for its annual general meeting (AGM) later this week, analysts sound bullish on the conglomerate's fundamental growth and "reasonably valued" stock price.
Reliance Industries (RIL) is scheduled to hold its AGM on Friday, August 29, with a special focus on growth plans for Jio, retail business and its New Energy (NE) vertical.
Analysts at CLSA expect the oil-to-telecom conglomerate's consolidated Ebitda to improve significantly in the near future, led by the increasing share of Jio and retail businesses. Strong growth momentum in Jio led by tariff hikes, along with steady streamlining of retail operations, allows for a recovery in its growth momentum in the next few quarters, it said.
Before entering retail and telecom, RIL's growth depended on capex or margin cycles, JPMorgan said. Now, retail and telecom contribute about 54 per cent of financial year 2024-25 (FY25) Ebitda and are expected to drive nearly all growth over the next three years.
After three years of negative free cash flow due to telecom investments, RIL is set to turn positive, supported by an annual Ebitda run rate of around $20 billion, even with high spending on New Energy, retail, and petchem expansions, JPMorgan added.
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Brokerages decode RIL FY25 annual report
Jefferies noted that RIL incurred total capital expenditure of ₹13.11 trillion in FY25. Of this, ₹33,700 crore was spent in the retail segment, including ₹15,800 crore by Reliance Retail, ₹100 crore by RRVL and ₹440 crore by Reliance Brands.
Telecom and the standalone O2C business, excluding New Energy, remained free cash flow positive. RIL’s FY25 cash flow was aided by a ₹38,400 crore increase in trade and other payables. Jefferies said even if this does not recur, growing Ebitda and stable capex should help reduce leverage in the near term.
CLSA noted that during FY25, RIL invested nearly $1.9 billion in its stake in the merged entity of Star India with Viacom18 and Disney. The brokerage pointed out that the subsidiary’s annual report shows a provision of around $3 billion linked to onerous sports-related contracts held by Star India.
Jefferies said RIL's annual report highlights higher capitalised costs in Jio and Retail, with consolidated capex flat year-on-year (Y-o-Y) and lower spending in both Jio and Retail. Free cash flow improved, led by Jio, though net debt saw a marginal rise. Jefferies also flagged a more than fivefold jump in Jio Platforms’ third-party revenues and positive free cash flow in Jio as key positives.
Analysts see RIL stock reasonably valued
The RIL stock is trading in a narrow range due to its conservative valuation, which builds in a depressed valuation for each of its business units, analysts at CLSA said. "In an otherwise extended valuation of the Indian market, Reliance’s conservative valuation makes it an attractive bet for most large-cap portfolios."
JP Morgan said RIL's relative valuations remain reasonable despite its year-to-date outperformance. The brokerage noted that the implied holding company discount on Jio and Retail, measured against Bharti and DMart’s EV/Ebitda multiples, stays elevated as those stocks have also performed well.
It added that stronger O2C margins, potential tariff hikes, and improved retail growth could act as key drivers going forward.
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