Buy Reliance Industries Ltd for the Target Rs.1,750 by Motilal Oswal Financial Services Ltd
Chaos can be a catalyst
* Geopolitical disruptions tighten refining & petchem markets: Blockade of the Strait of Hormuz (SoH) (~20% of global oil/LNG supply), ~3-4mb/d of refining capacity disruptions, refined product export restrictions in China, and decade-high crude freight rates have lifted gasoil/gasoline/jet fuel cracks to USD42/16/58 per bbl in Mar’26’TD, 147%/40%/124% above LTA. PE and PX prices also rose 10-15% MoM in Mar’26’TD. We believe that even if tensions ease soon, supply chain normalization may lag, keeping product cracks elevated and supporting Reliance Industries’ (RIL) refiningpetchem margins.
* ~8.5% upside to FY27 EBITDA if disruptions persist through 1HFY27: Following Russia’s invasion of Ukraine in Feb’22, gasoil refining margins remained elevated during FY23/24. RIL’s consol. O2C EBITDA rose 18% YoY in FY23 and remained stable in FY24 despite flat-to-slightly lower production meant for sale. Adjusted for SAED paid on export of transportation fuel, its O2C EBITDA grew 30% YoY in FY23. Assuming gasoil/gasoline/jet fuel cracks sustain ~USD15/5/15 per bbl above historical averages during 1HFY27, RIL’s O2C EBITDA could increase by ~INR170b, implying ~8.5% upside to our FY27 consol. EBITDA (and a TP of INR1,846 (current TP: INR1,750)). Further, petrochemical spreads could expand as supply disruptions lift product prices, while RILs’ diversified feedstock mix (only ~30% naphtha) limits crude-linked cost pressures. However, the re-introduction of export duties on fuels (similar to the Jul’22 SAED) could cap refining margins and limit the upside to O2C earnings.
* Valuation and view: Using the SoTP method, we value the O2C/E&P segments at 7.5x/5.0x FY28E EV/EBITDA to arrive at an enterprise value of INR5.7t (or ~INR420/sh) for the standalone business. We ascribe an equity valuation of INR590/sh and INR560/sh to RIL’s stake in JPL and RRVL, respectively. We assign INR174/sh to the New Energy business, INR30/share equity value to RCPL, and INR26/sh to RIL’s stake in JioStar. We reiterate our BUY rating with a TP of INR1,750.
20% of global crude and product supply disrupted
* The escalation of geopolitical tensions around the SoH, a critical chokepoint through which ~20-21mb/d of crude and condensate (~20% of global supply) and ~20% of global LNG trade passes, has begun to materially disrupt global energy flows.
* Four key disruptions tightening global product balances are:
* Massive oil supply crunch amid SoH closure and limited spare capacity: The closure of SoH has led to the biggest global oil supply disruption ever (more than double the previous record set during the Suez crisis of 1956). Unlike past crises, the current shock is amplified by limited global spare capacity, with most swing supply from Saudi Arabia and the UAE unable to reach markets.
* ~3-4mb/d refinery closures add to product supply pressure: Refineries in Bahrain, Saudi Arabia (550kb/d Ras Tanura), and the UAE (ADNOC’s 837kb/d Ruwais) have reported operational damage, while Kuwait (~1.4mb/d capacity) has reduced throughput due to storage constraints. Even temporary outages may take weeks to normalize due to inspections and restart procedures, delaying supply recovery.
* Additional tightening from Chinese export restrictions: Authorities in China have reportedly asked major refiners to suspend new gasoline and gasoil export contracts (media article). Removing even a portion of these export barrels from the market could significantly tighten regional supply balances, particularly for gasoline and gasoil. According to S&P Global, China exported ~0.9mb/d clean oil product in CY25 (global refined product demand of ~85mb/d). Further, China’s Mar’26 exports, estimated at ~0.9mb/d, could fall to ~0.6mb/d.
* Crude tanker shipping rates at decade-high levels: Disruptions in tanker movement through the SoH have significantly increased freight rates. VLCC charter rates have surged to decade-high levels, increasing delivered crude costs and tightening physical markets. Assuming a 30-day journey for a VLCC tanker with 2mb capacity and additional freight cost of USD200K/day, the delivered cost of crude oil/products has risen by USD3/bbl, adding to volatility in crude as well as oil product markets.
Strong refining environment to boost O2C earnings
* USD1/bbl increase in GRM leads to ~2.5% increase in consol. EBITDA: Refining cracks have witnessed a sharp uptick in recent weeks amid tightening product balances. Gasoil/gasoline/jet fuel refining GRMs are averaging USD42/16/58 per bbl in Mar’26’TD respectively (up 147%/40%/124% vs LTA), which should support earnings for the refining segment. For RIL, every USD1/bbl increase in GRM leads to ~2.5% increase in consolidated EBITDA.
* Petrochemical spread expansion likely amid diversified feedstock mix: PE and PX prices rose 10-15% MoM in Mar’26’TD, while Naphtha prices rose 34% MoM. Petrochemical prices are expected to rise amid supply chain disruptions (1.3/1.4 mb/d naphtha/LPG flowed via the SoH in CY25) and higher raw material costs due to rising crude prices and shutdowns of refineries, petrochemical complexes, and gas fields. Middle East supply disruptions have also forced several Asian refiners and petrochemical producers to cut runs and declare force majeure, as steam crackers reliant on the region for over 60% of their naphtha feedstock face shortages (media article).
* However, RIL’s feedstock costs remain relatively insulated from crude movements due to its diversified mix (~30% ethane, ~40% refinery off-gases, and ~30% crude-linked naphtha), which could support petrochemical spreads. ? Potential 8.5% upside to consol. EBITDA if tensions sustain through 1HFY27: Assuming gasoil/gasoline/jet fuel cracks sustain ~USD15/5/15 per bbl above historical averages during 1HFY27, RIL’s O2C EBITDA could increase by ~USD170b, implying ~8.5% upside to our FY27 consol. EBITDA (and TP of INR1,846 (current TP: INR1,750)).
* Feedstock flexibility provides resilience: One of RIL’s key advantages during supply disruptions is crude sourcing flexibility. While the company has not sourced Russian crude over the last few months, it could resume imports following a one-month waiver granted by the US government (media article).
* RIL can process up to 0.3-0.4mb/d Venezuela crude: In addition, Venezuelan crude exports are gradually returning to global markets following partial sanctions relief, providing an alternative supply source. Historically, Venezuela crude accounted for ~20%-25% of RIL’s overall crude sourcing in previous years.
* Re-introduction of SAED on export of fuels remains a key risk: The reintroduction of export duties on fuels (similar to the Jul’22 SAED) could cap refining margins and limit the upside to O2C earnings.
Valuation and view
* Using the SoTP method, we value the O2C/E&P segments at 7.5x/5.0x FY28E EV/EBITDA to arrive at an enterprise value of INR5.7t (or ~INR420/sh) for the standalone business. We ascribe an equity valuation of INR590/sh and INR560/sh to RIL’s stake in JPL and RRVL, respectively. We assign INR174/sh (~INR2.4t equity value) to the New Energy business, INR30/share (or INR400b) equity value to RCPL (FMCG, at 2x EV/sales), and INR26/sh (~INR350b) to RIL’s stake in JioStar. We reiterate our BUY rating with a TP of INR1,750.
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