RIL may not be so badly affected by the spike in crude oil and gas prices as initially estimated. While feedstock costs will rise, RIL could benefit from a short-term jump in diesel cracks due to fears of supply disruptions. It may also enjoy a possible rise in petchem margins since product prices rise in tandem with crude oil prices.
Diesel cracks have already risen. RIL’s refinery can yield high diesel percentages per barrel of oil and this will boost gross refining margins (GRMs). Every $1 per barrel rise in RIL’s GRM may boost annualised Ebitda by 2.2 per cent. But high cracks may not be sustainable in the long-term and there is also a possibility of tax policy capping crack gains. On the petchem side, RIL’s feedstock is about 25 per cent crude-linked naphtha, with the rest being ethane and gas wastes. Hence, petchem margins may rise.
Retail and telecom businesses accounted for 54 per cent of financial year 2025 (FY25) consolidated Ebitda. It is likely that most of the Ebitda growth over the next few years will come from these businesses and the other new businesses, rather than petrochemicals.
RIL has had negative cash flow for the past three years, due to massive capex in telecom. But as telecom business’ capex intensity eases off, Ebitda should translate into free cash flow (FCF). The guidance of net debt to Ebitda ratio of below 1x implies positive FCF. This is despite capex commitments to new energy, artificial intelligence (AI) and retail. RIL could see capex outlays of ₹1.2-₹1.4 trillion per annum through next two-three years, down from ₹2.3 trillion in FY23 and ₹1.3 trillion each in FY24 and FY25. The future capex could be fully funded by FCF from telecom, plus asset monetisation of the fibre network.
Another talking point is the expectation of Jio’s initial public offering (IPO) in calendar year 2026 (CY26) with a likely free float of about 2.5 per cent by the new proposed listing rules. Such an IPO may lead to a holding company discount for RIL’s stake of 67 per cent. But it is probable that a Jio IPO will unlock value. About 18 per cent of Jio is held by strategic shareholders, another 5 per cent by sovereign wealth funds and the remaining by private equity players. So, low float may lead to high valuations.
In addition, Reliance’s fast-moving consumer goods (FMCG), quick commerce, digital OTT, AI exposures and its move into new & renewable energy should start contributing significantly to valuations. RIL's proposed investments of $110 billion in AI data centres involve a partnership approach and may be largely funded by FCF. This AI capex is also likely to be backloaded with only 120 Mw of capacity in the second half of 2026.
The new energy polysilicon to module and battery projects may be commissioned soon and modules should generate power in CY26. By FY27-end, RIL may have capacity for 10 Gw solar modules, 10 Gw solar cells, 10 Gw wafers and part-completion of 40 Gwh battery cell lines. Eventual targets are module-cell capacity of 20 Gw each, wafer capacity of 20 Gw and battery capacity of 100Gwh by FY30 or FY31. Much of this will be consumed internally initially.
One key question for investors is whether the share price correction adequately discounts the uncertainty caused by the West Asia conflict. In the near-term, some of the impact may be offset by high diesel cracks. Telecom should deliver steady mid-teens Ebitda growth for the next few years.
If the conflict is resolved fairly soon, RIL could actually be a beneficiary. But, of course, if it continues indefinitely, high crude oil and gas prices, and supply uncertainties will start to bite. However, the moves into telecom, digital, retail, quick commerce, new energy, etc., could mitigate the impact.
 "Reliance Industries, RIL")
