Accumulate Reliance Industries Ltd for Target Rs.1,717 by Elara Capitals
Muted growth on weak retail and E&P
The stock price of Reliance Industries (RIL IN) rose 3% in the past three months, outperforming the benchmark Nifty index (flat QoQ), led by strong fuel cracks. This was due to the impact of US/EU sanctions on Russia, lower Chinese exports and refinery outages globally. Q3 consolidated EBITDA grew only 5% YoY to INR 460bn (Elara estimates: INR 493bn) and PAT marginally rose 1% YoY to INR 186bn (Elara estimates: INR 211bn). YoY EBITDA growth was led by: 1) a 16% jump in Digital Services’ EBITDA to INR 193bn, as estimated, and 2) a 15% growth in Oil-to-Chemicals’ (O2C) EBITDA to INR 165bn, lower than our estimate of INR 177bn, but dragged down by: 1) marginal 2% growth in Retail EBITDA to INR 68bn, in line with estimates, and 2) drop in Oil & Gas (E&P) EBITDA by 13% to INR 49bn, as estimated. We retain Accumulate and raise our TP to INR 1,717, as we roll over to FY28E.
O2C – Primary earnings driver: O2C was supported by multi-quarter-high fuel cracks. Management highlighted that fuel cracks rose ~60-100% YoY on margin-accretive shift from aromatics to fuels, and sustained benefit from ethane cracking versus naphtha. Downstream chemicals (polymers, polyester, chemicals) continued to be weak, but were contained by fuels and integration. Domestic fuel placement via Jio-BP remained strong.
Digital continued to deliver double-digit EBITDA growth and margin expansion: Digital was led by strong subscriber addition (+8% YoY), rising ARPU (+10% YoY, mix-led), and rapid 5G and fixed broadband adoption. The segment increasingly resembles a consumer-tech cash flow business than a telecom capex story. Per capita data use rose 26% YoY to 40.7GB/month.
Retail EBITDA margin dropped from 7.4% to 6.9% YoY, led by promotions, hyper-local/quick commerce investments, one-off labor code and festival season-led base effect. Quick commerce scaled rapidly, improving strategic relevance but diluting margins near term. Post de-merger, FMCG revenue grew 60% YoY to INR 51bn, but remains investment-heavy.
E&P EBITDA declined 13% YoY due to natural production decline for KG-D6 and lower gas realization (KG-D6, CBM). CBM volumes improved, but not enough to offset the drop in KGD6. Soft global LNG prices are a structural headwind, with no near-term catalyst highlighted.
New Energy – Execution progress is visible (solar module and cell commissioning; battery ecosystem being built), but with no material earnings contribution yet. This is a mediumterm optionality, and not a driver for FY26.
Reiterate Accumulate; TP raised to INR 1,717: We cut FY26E/27E/28E EPS by 11%/8%/7% on lower Retail EBITDA, higher interest and tax expenses. We raise our TP to INR 1,717 (from INR 1,636), as we roll over to FY28E. We assume FY28E EV/EBITDA for digital services at 14.0x (from 15.0x) and GRM at USD 12.0/bbl (from USD 9.8/bbl). We ascribe 22.0x (from 24.0x) FY28E EV/EBITDA to retail, and 6.0x (from 6.5x) to O2C. Maintain Accumulate, on expectation of strong growth in telecom EBITDA, recovery in Retail, though partially offset by normalizing GRM and falling E&P revenue. Telecom, retail IPO plans, and closure of refining/petchem capacity globally are triggers.
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SEBI Registration number is INH000000933.
