Reliance back on growth path, multiple catalysts to drive performance, say brokerages

New Delhi: Reliance Industries Ltd, India's most valuable company, is back on a growth path after six months of challenges as it posted better than expected earnings in the December quarter, brokerages said.

Oil-to-telecom-and-retail conglomerate's highest-ever EBITDA of Rs 43,800 crore in October-December 2024 - the third quarter of April 2024 to March 2025 fiscal (FY25) - best estimates on strong showing across segments. In particular, this was driven by strength in oil-to-chemical (O2C), which is made up of oil refineries and petrochemical plans, and recovery in consumer retail.

"Reliance is back on a growth path after six months of challenges," Morgan Stanley said in a note.

The company is looking to expand its chemicals capacity focused on the domestic market with investments in vinyl/polyester chains and ethane import logistics. "This sees a significant interplay between new energy and O2C leading to lower costs and carbon footprint. India demand for chemicals remains robust growing 5-16 per cent year-on-year on key chains," it said.

HSBC Global Research said it expects multiple catalysts in 2025 "ranging from turnaround of retail, start of new energy and new momentum in digital." "We believe 3Q earnings which were in-line with consensus are probably the last of the sub-par performances in the near term," it said. "We now believe there is a line of sight to potential catalysts in the form of a turnaround of retail, the start of the new energy business and a pick-up in momentum in the digital business." For retail, it expects the company to have completed its portfolio and product optimisation and return to growth path, making in-roads on grocery express delivery through the hyperlocal model. In new energy, Reliance is expected to start production of the module and cell business, commission 5-10 GW of solar capacity for captive use, scale sodium ion cell production, and announce hydrogen manufacturing.

For digital, AirFibre based home broadband penetration is expected to accelerate per user revenue (ARPU) growth, the full effect of a tariff hike to become visible by June 2025 and potential announcement of monetisation and value discovery of the digital business.

"We think the O2C segment has bottomed and there is little room for further negative surprise. Amidst all this, we expect capex intensity to slow down and free cash flow generation to increase," it added.

Nomura said Reliance has three triggers in the near term: commencement of the new energy business in March 2025; upcoming tariff hikes for Jio; and potential IPO/listing for Jio. "Additionally, any incremental downside risks to the O2C business are limited, in our view, given favourable supply/demand for refining, with global oil demand of 1.1 million barrels per day likely to outpace CDU additions of 0.6 million bpd." Oil-to-chemical, which houses company's refineries and petrochemical units, earnings rose on higher fuel cracks and polymer deltas while telecom arm jumped on increase in per user earnings and retail rebounded on festive season sales.

Nuvama Institutional Equities said Reliance would be among top 10 global producers post-petchem expansion. "It has strong growth visibility on expectation of recovery in petchem margins. New Energy's foray would equal O2C's profits in 5-7 years." Bernstein said Reliance Q3 earnings were a beat driven by strong performance across Jio, retail and exploration and production (E&P). While telecom arm Jio is yet to see residual impact of tariff hike still to play out, retail delivered strong growth led by rebound in demand in fashion amongst festive season. O2C improved due to strong volume led growth and improvement in refinery/petchem margins.

JP Morgan said prior to venturing into retail/telecom, Reliance's earnings growth was determined by either capex (new refining/chemical capacities), or margin cycles. Capex cycles then tended to impact stock performance.

Reliance Retail and telecom together now account for around 50 per cent of total FY24 consolidated EBITDA. "On our estimates, these will account for almost all of the net EBITDA growth over the next three years," it said.

Goldman Sachs said the macro and micro set up are now aligning well for a strong returns inflection in FY26 driven by refining margins, another tariff hike at Jio, rebound in retail earnings growth, and potential start of the new energy giga complex (initially with 10GW module/cell line and gradually fully integrating to wafer/poly through calendar year 2025-27).

"Over the last decade, Reliance has successfully incubated businesses of the future, such as digital services and retail, and has transformed itself from being a legacy oil and gas business," BP Paribas said.

In telecoms, it is the industry leader, and has made significantly larger investments in 5G than its peers.

"We think Reliance is well-positioned to benefit from rising data demand in India and an increase in telecom tariffs. Its retail business is industry-leading across grocery, fashion and consumer electronics. The upstream oil and gas (production) business had a significant turnaround, with the start of new production from KG-D6 gas fields," it said. "We think Reliance's new green-energy businesses (solar, batteries, fuel cells and hydrogen) look promising, though we await more visibility." Reliance's third quarter earnings were largely in line with estimates. Reliance Retail saw an improvement in growth and is piloting express deliveries (below 10 minutes) from its stores. Telecom arm Jio is seeing strong traction in its AirFiber services, and its non-connectivity digital revenue was up 60 per cent.

Kotak Institutional Equities said improvement in the retail business and steady oil-to-chemical (O2C) business was offset in part by a weak telecom segment owing to slow flow-through of the July 2024 tariff hike.

DAM Capital said after a challenging first half, Reliance posted a decent recovery in October-December - the third quarter of April 2024 to March 2025 fiscal (FY25).

Macquarie Capital said the December quarter represented an improvement against soft earnings prints in the prior two quarters. Looking ahead, Reliance's consolidated EPS will rise 37 per cent FY25-27 on robust retail revenue growth; tariff, subs, and margin expansion at Jio; recovery in O2C margins; and a reduction in net financial costs with deleveraging.

"We expect benefits from tariff hike in telecom and growth in retail to be offset by weak petrochemical margin environment owing to oversupply and muted demand in China," Elara Capital said.

Antique Stock Broking said despite the 3Q disappointment, the telecom outlook is robust with strong subscriber growth and another round of tariff hike over the next 18 months. "Post the restructuring, Retail is likely to emerge stronger even as O2C and oil and gas remain stable".

ICICI Securities saw O2C prospects coming under pressure in the next two quarters with the disruption in Russian crude supplies and stronger crude prices likely crimping margins in the near term. "Overall O2C prospects remain tepid for the next 12-18 months." According to BofA Securities, management sees O2C biz well positioned for material intensive phase of India growth. "Reliance's strategy is to invest in high growth domestic markets with focus on sustainable profitability, prudent capital allocation to downstream chemical projects; invest at bottom of cycle, taking advantage of lower project cost and focus on scale, flexibility, integration, and new tech for a competitive cost position."