Buy Reliance Industries Ltd For Target Rs. 1,550 by Motilal Oswal Financial Services Ltd
Standalone: O2C – From trough to takeoff
* RIL’s O2C business provides exposure to volatility in refining/petchem:
Following a strong 1QFY27 earnings performance, we see upside risks to Reliance Industries’ (RIL) O2C earnings amid: 1) robust refining GRM, supported by healthy summer demand, 2) refinery disruptions in Russia (refinery runs down 26% YoY in Jul’26), 3) refining capacity outage in the Middle East (~2mb/d), and 4) reduced refinery runs in China (down 2.7mb/d (~18%) YoY in Jun’26). Limited global refining capacity additions in FY27/28 (IEA CY26/27 est.: 1/0.15 mb/d) should underpin a favorable medium-term outlook for the O2C business. Assuming RIL’s standalone performance remains similar to 1QFY27 in both 2Q and 3QFY27, we estimate a ~4.5% upside to our FY27 consolidated EBITDA estimate.
* Structural feedstock advantage to extend further; petchem turnaround in 2HFY28-FY29:
RIL’s structural ethane feedstock advantage is expected to strengthen further, with the share of gas-based cracking likely to increase to ~78-80% (~70% currently) once all three VLECs become operational (one already delivered). Notably, gas crackers delivered a USD200-650/mt EBITDA premium over naphtha crackers during CY21- 2QCY26. Additionally, petchem markets are expected to head closer to balance amid planned capacity closures globally (10mmtpa ethylene closures announced; additional 20mmtpa closures expected). Further, RIL is set to commission multiple petchem capacities by end-FY27/start-FY28, boosting O2C volumes.
* Valuation and view: Our SoTP-based TP of INR1,550/sh values the standalone O2C/E&P business at INR415/share, with additional value from JPL (INR431/share), RRVL (INR515/share), New Energy (INR174/share), RCPL (INR40/share) and JioStar (INR26/share).
Refining: Strong near-to-medium term outlook; limited capacity growth in CY27
? Global refining fundamentals remain supportive, driven by elevated unplanned outages, structurally tight effective capacity (S&P Global forecasts refinery downtime at 9.7mb/d in Jul'26), and healthy product cracks. While refinery downtime is expected to ease sequentially, limited capacity additions (1/0.15 mb/d in CY26/27) and the need to rebuild refined product inventories should keep refining margins above historical levels over the medium term. ? CY26/27 capacity additions at only 1/0.15 mb/d to keep market tight: According to S&P Global, net global refining capacity additions remain modest at ~1mb/d in CY26 and just ~0.15mb/d in CY27, while further refinery closures are now considered unlikely. This points to a relatively balanced supply outlook with limited downside risk to refining margins.
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