Buy Reliance Industries Ltd for the Target Rs. 1,700 by JM Financial Services Ltd
Key takeaways from FY25 Annual Report
RIL, in its FY25 annual report, reiterated plans to establish 100GW of renewable energy by 2030 to achieve Net Carbon Zero by 2035; it also highlighted that its Green Energy Giga complex and related projects are progressing on schedule for gradual commissioning over CY25/26. On the O2C business, it highlighted that while petchem margin outlook is subdued on huge capacity addition amidst muted demand, refining margin outlook is robust as rampup of new refineries is likely to be offset by shutdowns. As regards the Digital business, it highlighted that Jio’s SA 5G network carries ~60% of India wireless data traffic and has ~191mn 5G users at end-FY25. Further, Jio accounted for ~70% of new homes addition in industry in FY25 via its aggressive rollout of JioAirFiber; the company reiterated its 100mn homes target. Digital business capex moderated to INR 385bn in FY25 (vs. INR 574bn in in FY24) taking cumulative investment to ~INR 5.5trln; EBITDA contribution from digital business ex-telecom is ~INR 38bn in FY25 and accounts for 6-7% of overall Digital EBITDA. Separately, Retail business capex rose to INR 337bn in FY25 (vs. INR 245bn in FY24 but below peak capex of INR 514bn in FY23); the management is focused on expanding consumer brands and strengthening digital and new commerce capabilities. RIL’s consolidated FY25 capex remains moderate at ~INR 1,311bn led by moderation in digital capex; net debt is likely to have peaked as capex likely to get fully funded via internal cash flows. We reiterate BUY (unchanged TP of INR 1,700) as we believe RIL has industry leading capabilities across businesses to drive robust 15-20% EPS CAGR over the next 3-5 years, particularly driven by both consumer businesses with Jio’s ARPU is expected to rise at 13% CAGR over FY25-28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market.
* Reiterates plans to establish 100GW of renewable energy by 2030 to achieve Net Carbon Zero by 2035; Green Energy Giga complex and related projects progressing on schedule for gradual commissioning over CY25/26: RIL reiterated its New Energy business roadmap and reported rapid progress in setting up of giga factories, establish 100GW of renewable energy by 2030 to achieve Net Carbon Zero by 2035 and become one of the world's leading new energy and new materials companies over a period of 10 years. Further, it also shared progress on the Green Energy Giga Complex in Jamnagar and the related projects: a) commissioned its first GW+ scale solar PV module line and is well on its way to establish 10GW fully integrated solar PV manufacturing from polysilicon to ingot and wafer to cell/module along with glass and encapsulant and expand it in modular fashion thereafter; b) 30GWh advanced battery giga-factory scheduled for progressive commissioning over 2025/2026; c) multi-GW electrolyser giga-factory on track, expected to be established by end-2026, which will bolster its green hydrogen capabilities; and d) started land development in Kutch for solar power generation; also highlighted that it can generate ~150bn units of electricity from Kutch. Separately, it also shared its CBG ambitions and EV charging initiatives.
* Petchem margin outlook subdued on huge capacity addition amidst muted demand; however, refining margin outlook robust as ramp-up of new refineries likely to be offset by shutdown: Petchem margin outlook continues to be weak on huge capacity addition amidst muted growth in global petchem demand, but RIL's petchem margin and volume has been relatively better due to optimised feed mix and healthy domestic demand. However, global refining margin outlook remains robust as ramp-up of new refineries is likely to be offset by shutdowns; further, RIL is well placed with feedstock sourcing advantage, yield optimisation and superior product placement. On E&P business, RIL is focussing on reserves accretion via commercialisation of discovered resources and infrastructure-led exploration.
* Jio’s SA 5G network carries ~60% of India wireless data traffic and has ~191mn 5G users at end FY25; Jio accounted for ~70% of new homes addition in industry in FY25 via its aggressive roll-out of JioAirFiber, reiterated 100mn homes target: Jio reiterated its edge in 5G due to its standalone (SA) 5G architecture and had ~191mn subscribers (subs) on its pan-India 5G network at FY25 end (vs. ~108mn at end FY24 for Jio; Bharti has ~135mn 5G subs at end FY25). Jio’s 5G network now carries almost ~45% of its wireless data (vs. ~30% at end FY24). Further, Jio's aggressive pan-India rollout of JioAirFiber enabled it connect ~18mn homes with JioFiber/JioAirFiber at end-Mar'25 (and +20mn at end-Jun'25 vs ~12mn premises at end-Mar'24); Jio accounted for ~70% of total new additions in industry in FY25 as per TRAI data. It reiterated its target to connect 100mn homes through a combination of fibre and fixed wireless solutions. Moreover, Jio is building a comprehensive AI ecosystem that democratises computer access and develops indigenous AI capabilities, and helps tap the huge opportunity provided by AI services.
* Digital business capex moderated to INR 385bn in FY25 (vs. INR 574bn in in FY24) taking cumulative investment to ~INR 5.5trln; EBITDA contribution from digital business extelecom is ~INR 38bn in FY25 and accounts for 6-7% of overall Digital EBITDA: RIL’s capex in the Digital business moderated to INR 384bn in FY25 (vs INR 574bn in FY24) after it had rolled out 5G pan-India by Dec’23. This takes cumulative investment to ~INR 5.3trln till end-FY25 in the overall Digital business including Telecom. Out of this, +INR 4.5trln cumulative investment has been spent so far in the Telecom business while + INR 0.9trln has been spent in pure Digital businesses ex-Telecom. EBITDA contribution from the Digital business ex-Telecom is ~INR 38bn in FY25 and accounts for 6-7% of overall Digital EBITDA of ~INR 650bn. Of this ~INR 38bn Digital EBITDA, ~INR 29bn is on account of entities inside JPL and ~INR 8bn is related to entities outside JPL – Exhibit 7-8.
* Retail business capex rose to INR 337bn in FY25 (vs. INR 245bn in FY24 but below peak capex of INR 514bn in FY25); focused on expanding consumer brands and strengthening Digital/New Commerce capabilities: The management reiterated the strong growth potential in India’s retail sector, expected to grow at a strong ~9% CAGR to INR 190trln market by CY34 (quoting a recent report by BCG and Retailers Association of India). RIL Retail is the largest omni-channel retailer with integrated physical stores, digital and new commerce platforms, and it witnessed steady to strong growth across segments in FY25 while JioMart continued to scale its quick commerce delivery capability. Reliance Retail’s capex rose to INR 337bn in FY25 vs. INR 245bn in FY24, but continues to have moderated vis-à-vis huge capex of INR 514bn in FY23. Reliance Retail added 2,659 gross new stores and 504 net new stores during FY25, taking the total store count to 19,340 at end FY25 while its total retail space area declined slightly to 77.4mn sqft at end-FY25 (vs. 79.1mn sqft at end-FY24) probably as a few larger stores got rationalised and replaced by smaller stores. The registered customer base grew ~15% YoY to 349mn at end FY25. Further, consumer brands business continued to show strong growth across categories, driven by expanding product offerings and increasing market presence, with flagship brands such as Campa and Independence gaining momentum across regions, strengthening their position in key categories and showing promising growth potential. Campa continued to gain traction across markets, registering >10% market share in sparkling beverage category in select states.
* RIL’s FY25 capex remains moderate at ~INR 1,311bn led by moderation in Digital capex; net debt likely to have peaked as capex likely to get fully funded via internal cash flows: RIL’s consolidated capex moderated slightly to INR 1,311bn in FY25 (vs. INR 1,318bn in FY24) as: a) Digital business capex declined to INR 384bn in FY25 (vs. INR 574bn in FY24); b) Retail business capex increased to INR 337bn in FY25 (vs. INR 245bn in FY24 but below peak capex of INR 514bn in FY23); and c) O2C business capex increased to INR 266bn in FY25 (vs. INR 203bn in FY24). RIL’s consolidated reported net debt stood at INR 1,171bn at end-FY25 or 0.7x reported net debt to EBITDA; however, as per our calculations, adjusted net debt (including spectrum and other liabilities) was at ~INR 3,046bn or comfortable 1.8x adjusted net debt to EBITDA. We expect the capex run-rate to remain around FY25 level of ~INR 1,300bn going forward, with rise in New Energy capex (assumed at annual run-rate of ~INR 250bn) offset by moderation in Retail and other businesses. Hence, we expect RIL’s net debt to having peaked and decline gradually as capex is likely to get fully funded via a gradual rise in internal cash generation.
* AGM on 29 th Aug’25 — key expectations around potential strategic sale and listing plans for its key businesses: Key expectations from 29 th Aug’25 AGM are around any update on: a) potential timeline for listing of Digital and Retail businesses; any potential strategic stake sale in O2C business; b) any update on 5G monetisation plans; c) update on progress of various projects underway in the New Energy business with timelines around project commissioning and potential earning potential from this projects; d) update on long-term capex plans in the New Energy business and potential strategic stake sale in the business and e) any further update around succession plans.
* Reiterate BUY on robust 15-20% EPS CAGR over the next 3-5 years: We reiterate BUY (unchanged TP of INR 1,700) as we believe RIL has industry leading capabilities across businesses to drive robust 15-20% EPS CAGR over the next 3-5 years, particularly driven by both consumer businesses with Jio’s ARPU is expected to rise at 13% CAGR over FY25-28 with ARPU being on a structural uptrend given the industry structure, future investment needs, and the need to avoid a duopoly market. Clarity on the potential timeline and valuation of Jio’s listing could be a possible near- to medium-term trigger. At CMP, the stock is trading at FY27E P/E of 19.2x (3-yr avg: 24.7x) and FY27E EV/EBITDA of 10.2x (3-yr avg: 12.6x). Key risks: a) sharp jump in capex in New Energy business, resulting in rising net debt with limited earnings visibility from new projects; b) weak subs addition and limited ARPU hike; c) muted growth in the retail business; and d) subdued O2C margins due to macro concerns.
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