Reliance Industries Ltd (RIL) delivered an impressive performance for the December quarter of FY25, prompting several brokerage firms to upgrade their stock ratings to ‘Buy’ from ‘Hold.’ The results, driven by robust growth in its retail and oil-to-chemicals (O2C) segments, have positioned RIL as an attractive investment, especially given its 19% decline over the past six months.
Let’s break down the key takeaways from RIL’s Q3 performance and analyst recommendations.
Highlights from RIL’s Q3 Results
1. Consolidated Performance
- Net Profit: RIL reported a consolidated profit after tax (PAT) of ₹18,540 crore, a 7.4% YoY increase, and 3% above estimates by Emkay Global.
- EBITDA: Consolidated EBITDA stood at ₹43,800 crore, beating estimates by 4%.
- Revenue Growth: Top-line growth in the retail segment was 9% YoY, outperforming expectations of a marginal decline.
2. Segment-Wise Performance
- Retail: The retail segment delivered 18% QoQ revenue growth, driven by the festive season.
- O2C: Oil-to-chemicals saw a 6% beat in estimates, supported by stable margins.
- Telecom: EBITDA in the telecom segment lagged slightly due to incomplete absorption of the July tariff hikes.
Analyst Recommendations and Target Prices
Emkay Global
Emkay upgraded RIL to ‘Buy’ from ‘Add,’ citing attractive valuations and a strong Q3 performance.
- Key Observations:
- Retail and O2C outperformed, driving better-than-expected profits.
- Trimmed target price to ₹1,570, reflecting a 10% cut in the retail segment’s valuation multiple.
- Triggers to Watch:
- Progress in new energy developments.
- Monetization of verticals in telecom and retail.
Antique Stock Broking
Antique upgraded RIL to ‘Buy’ from ‘Hold,’ emphasizing the strength of its retail and O2C performance.
- Key Observations:
- Post-Q3 results, EBITDA estimates for FY25–27 were revised upwards by 1–2%.
- Telecom EV/EBITDA multiple raised to 12x, aligning with Bharti Airtel.
- Target Price: Revised upward to ₹1,456 from ₹1,409.
Nuvama Institutional Equities
Nuvama highlighted RIL’s long-term growth visibility, particularly in the petchem and new energy segments.
- Key Observations:
- Petchem margins are expected to recover.
- New Energy foray projected to equal O2C profits in 5–7 years, contributing significantly to consolidated PAT.
- Target Price: ₹1,677
Motilal Oswal Financial Services (MOFSL)
MOFSL reiterated its ‘Buy’ rating, citing strong growth potential across multiple verticals.
- Key Valuations:
- Jio Platforms (JPL): ₹530 per share.
- Reliance Retail Ventures Ltd (RRVL): ₹6,250 per share.
- New Energy: ₹47 per share.
- Disney JV Stake: ₹26 per share.
- Target Price: ₹1,600
Foreign Brokerages
- Morgan Stanley (MS): Maintained ‘Overweight’ rating with a target price of ₹1,662.
- CLSA: Retained ‘Outperform’ rating with a target price of ₹1,650.
Key Drivers Behind Analyst Optimism
1. Retail Segment Resilience
The retail segment’s 18% QoQ growth showcases its ability to capitalize on seasonal demand. Analysts believe the segment has strong growth potential, with stable margins contributing positively to overall performance.
2. O2C and Upstream Growth
The oil-to-chemicals business remains a cornerstone of RIL’s earnings. The 6% beat in O2C estimates reflects the company’s operational efficiency and market positioning.
3. New Energy Potential
RIL’s foray into clean energy is expected to contribute significantly to its profitability in the next 5–7 years. Investments in renewable energy, such as the Khavda solar project, align with global sustainability trends and provide a clear growth trajectory.
Long-Term Outlook
Reliance Industries’ diversified business model ensures that it remains resilient amid economic uncertainties. Key factors influencing its long-term outlook include:
- Telecom Expansion: With a focus on FTTH and AirFiber, RIL aims to strengthen its position in the telecom sector.
- Petchem Recovery: Recovery in margins and expansion in production capabilities are expected to drive future growth.
- Strategic Investments: The company’s investments in clean energy and technology innovation signal a forward-looking strategy.
FAQs
Why did analysts upgrade RIL’s stock to ‘Buy’?
Analysts upgraded RIL to ‘Buy’ due to its strong Q3 results, particularly in the retail and O2C segments, and its attractive valuation after a 19% decline in the past six months.
What is the target price range for RIL shares post-Q3?
Target prices for RIL shares range from ₹1,456 to ₹1,677, with most analysts highlighting long-term growth potential.
What contributed to the Q3 earnings beat?
The Q3 earnings beat was driven by strong retail performance, stable O2C margins, and better-than-expected consolidated EBITDA of ₹43,800 crore.
What are the growth drivers for RIL in FY25–27?
Key growth drivers include:
- Expansion in the retail segment.
- Recovery in petchem margins.
- Investments in renewable energy.
- Continued monetization of telecom and retail verticals.
Should you buy RIL shares now?
Given its strong performance, attractive valuation, and long-term growth prospects, analysts recommend accumulating RIL shares, especially at current levels.
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