RIL correction amid Iran war 'overdone', says JM Financial; eyes 29% upside

JM Financial says the correction in Reliance Industries stock is overdone as it sees the company gaining from Iran war. It has maintained its 'Buy' rating with a ₹1,730-target, implying 29% upside

The recent correction in Reliance Industries (RIL) share price may be overdone, believe analysts at JM Financial Institutional Securities, who see meaningful upside in the stock from current levels. 

It has maintained its 'Buy' rating on the RIL stock with a share price target of ₹1,730 per share, implying a potential upside of 28.6 per cent from current market price (₹1,345). 

The brokerage argues that the markets have punished RIL stock, which is down around 4 per cent this week and 8 per cent over the past month, amid rising Middle East tensions. The company, however, is not structurally exposed to the spike in crude and LNG prices, it said. 

 

"Instead, RIL could see near-term benefits due to a jump in diesel crack on account of supply disruption risk; and likely rise in petchem margin," the brokerage said. 

That apart, JM Financial analysts attributed part of the recent stock weakness to foreign institutional investor (FII) selling, which has brought the stock close to the brokerage’s bear-case valuation of around ₹1,275 per share. FII holding stood at 21.1 per cent at the end of December 2025 versus peak of 28.3 per cent at end of March, 2021. 

"We reiterate 'Buy' on the stock on comfortable valuations after the recent correction, as the share price adequately factors concern around near-term weakness in retail business Ebitda growth. However, it's not discounting the compounding story in Digital business over the next 2-3 years driven by Arpu CAGR,” JM Financial said.  On the BSE, RIL share price gained 3 per cent in the intraday trade to hit a high of ₹1,386.95 per share. At 11 AM, the stock was up 2.8 per cent as against a 0.67-per cent rise in the benchmark Sensex index. RIL stock was the top gainer on the Sensex and Nifty indices today.  

Why JM Financial sees the correction in RIL stock as 'excessive'?

According to the brokerage, concerns that higher crude prices could hurt RIL's oil-to-chemicals (O2C) earnings are misplaced. Instead, it expects near-term benefits from stronger refining economics. 

Diesel cracks have surged sharply to $35-42/barrel in the last two days (from $20/bbl earlier). Given that diesel accounts for 40-50 per cent of RIL's refinery yield, this could lift gross refining margins (GRMs), it said. 

"Assuming diesel crack sustains at around $30 per barrel, RIL's GRM could rise by $4–5 per barrel," the report noted. It added that every $1 per barrel improvement in GRM could increase annual Ebitda (earnings before interest, tax, depreciation, and amortisation) by about ₹4,500 crore, or 2.2 per cent, and raise valuation by roughly ₹29 per share. 

Secondly, RIL, the brokerage said, may also gain from higher petrochemicals margins. While product prices tend to track crude, RIL's feedstock mix -- comprising a large share of ethane and off-gases and relatively lower dependence on crude-linked naphtha -- limits cost escalation. 

"RIL could see a likely rise in petchem margin as product prices move up, while feedstock cost is unlikely to rise proportionately," it said, adding there remains a risk of the government taking it away via windfall tax. 

RIL's petchem feedstock breakdown is approximately 25 per cent ethane; 50 per cent off-gases; and only 25 per cent crude-linked naphtha.  READ | Antique retains 'Buy' on Arvind Fashions, flags growth from brand overhaul

Digital growth, Jio IPO among key triggers

While near-term retail Ebitda growth may moderate due to investments in quick commerce, JM Financial believes the current price adequately factors in that risk. The bigger opportunity, it said, lies in the digital business. 

"The market is not discounting 15-16 per cent Ebitda-compounding in the Digital business over the next 2-3 years driven by 10-11 per cent Arpu CAGR," the brokerage said, forecasting a 14-16 per cent earnings per share (EPS) compound annual growth rate over the next three to five years. 

The brokerage cited the potential initial public offering (IPO) of Reliance Jio in the coming months, subject to regulatory clarity, and the possibility of a telecom tariff hike thereafter as key catalysts for RIL stock going ahead. 

Financially, the brokerage also expects RIL's net debt to decline gradually (to ₹1.2-1.4 trillion annually versus ₹2.3 trillion in FY23 and ₹1.3 trillion in FY24 and FY25) as capital expenditure moderates and internal cash generation improves, providing additional balance sheet comfort. 

"RIL's guidance on keeping reported net debt to Ebitda below 1x (0.6x as of Q3FY26) also gives comfort," JM Financial said. 

Weaker-than-expected subscriber additions, limited Arpu hikes, subdued retail growth, and softer O2C margins, however, may challenge growth expectations, analysts at the brokerage cautioned.

RIL stock valuation

JM Financial believes RIL is currently trading at 16.8x price-to-earnings (P/E) based on FY28 estimated earnings, and 8.2x FY28 estimated EV/Ebitda – well below the three-year averages of 23.9x and 11.9x, respectively. 

"At CMP, RIL is trading near our bear-case valuation of ~₹1,275, which is based on 20x FY28E EV/Ebitda multiple for the retail business (25x in base case); 11x FY28E EV/Ebitda for the telecom business (12.6x in base case); New Energy business at 1x (2x in base case); and 6.5x FY28E EV/Ebitda for O2C business (7.5x in the base case)," it said.  ===================  Disclaimer: View and outlook shared belong to the brokerage/analysts and are not endorsed by Business Standard. Readers' discretion is advised.