Goldman Sachs, a global brokerage firm, has added Reliance Industries to its Asia Pacific Conviction List. This decision is based on the company's robust earnings growth, improvements in its refining and retail businesses, the potential for telecom tariff hikes, and its expansion into the energy sector. The brokerage firm anticipates a potential stock price increase of approximately 17.5% for Reliance within the next 12 months.
Goldman Sachs' Support for Reliance
Goldman Sachs has included Mukesh Ambani's Reliance Industries Limited (RIL) in its "Asia Pacific Conviction List." This list comprises stocks the brokerage firm considers high-potential investment options. The report suggests significant improvements are anticipated in the company's earnings, profits, and valuation.
Nitish Bhandari, an analyst at the brokerage, indicated a potential 16% increase in Reliance's EBITDA by fiscal year 2026, while projecting a mere 2% growth for FY25. Furthermore, the company's return on capital employed (CROCI) could reach 11% by FY27.
Four Key Drivers of Growth
1. Strengthening Refining Business:
According to Goldman Sachs, Reliance's refining business is benefiting from reduced global refining capacity, delays in certain projects, and its advanced refining infrastructure. The price differential between light and heavy crude oil has improved the company's margins.
2. Retail Segment Recovery:
The brokerage believes Reliance's retail business will resume growth at a rate of approximately 15%. The focus on platforms like JioMart and faster delivery services is expected to contribute to positive trends in the retail sector.
3. Potential Telecom Tariff Increase:
Goldman Sachs anticipates Reliance Jio might increase prices for its mobile services in the second half of FY26. This could lead to a 14% increase in ARPU (Average Revenue per User) by March 2026, reaching ₹236 per user. Additionally, the telecom segment's EBITDA could grow by 23%.
4. Expansion in the Energy Sector:
Reliance may begin operations on its new energy projects from 2026 onwards. These include 10 gigawatts of solar power generation and a 30 GWh battery and cell manufacturing capacity. The brokerage believes this could contribute to long-term value creation.
Share Price and Valuation Assessment
Goldman Sachs estimates that Reliance's share price could rise to ₹1,660 in the next 12 months, representing an approximate 17.5% increase from the current price. They also noted that the stock is currently trading at a discount to its historical average on valuation metrics like EV/EBITDA. Furthermore, Reliance shares are valued at their largest discount to net asset value since the COVID-19 pandemic.
The brokerage also clarified that in a bear case scenario, the stock could decline by 11%, while a bull case scenario could see it rise by 61%.
Investment Advice Needed
This article is presented for informational purposes only. The information provided is based on the opinions of Goldman Sachs and other analysts. It is imperative to consult with a certified investment advisor before making any investment decisions.
