Reliance Industries (RIL) shares dropped as much as 3% to Rs 3,019 on the BSE on Monday after the oil, retail, and telecom giant reported a 5% year-over-year (YoY) decline in its consolidated earnings, missing the Street forecast for the June quarter. Jefferies lowered its target price for the heavyweight stock by a small amount to Rs 3,525, while Nuvama set the highest objective at Rs 3,786.
The overall Q1 results were in line, but Jefferies noted that retail disappointed and that the outlook for the profitability of the oil-to-chemicals division remained muted, even if the target price was lowered from Rs 3,580 to Rs 3,525.
With a target price of Rs 2,750, Macquarie maintained a neutral call on the company, stating that it still sees a downside to the consensus EPS. But Japanese brokerage Nomura remained bullish, citing RIL as its top pick in the industry and even raising the target price from Rs 3,450 to Rs 3,600.
It is observed that the prognosis is still positive for all categories. According to Nomura, the following consumer businesses are still experiencing strong growth: (i) Retail, which is supported by store expansions, robust growth in digital and new commerce, and operating leverage; and (ii) Jio's tariff increase will lead to value creation and monetization of investments, improving return ratios and free cash flow generation.
RIL stated that its strong free cash flow production of Rs 28,300 crore in FY25, as well as its lowering levels of debt to Rs 2.4 lakh crore and capex to Rs 1.25 lakh crore, will further benefit the company.
Despite maintaining optimism for the core O2C sector, Nuvama stated that it is giving Jio and Retail a high price due to their enormous potential (both refining and chemicals). "We think that a "paradigm shift in regional refining dynamics" from the West to the East would lead to higher refining margins in Asia, which is advantageous for a sophisticated refiner like Reliance. The statement read, "Global chemical utilization rates have reached a low point. RIL's entry into the new energy sector will spur further growth in addition to supporting its traditional operations."
