Reliance Industries shares at inflection point. 6 reasons why FY26 could be the year of big re-rating

Economic Times

29-04-2025

Six triggers that could re-rate RIL shares in FY26:
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1) Telecom: Monetisation moves, tariff heat rising
2) New energy: Green dreams, real deliveries
3) Oil-to-Chemicals (O2C): Old engine, new fire
4) Retail: Revival mode activated
5) Valuations: Room to run
6) Value unlocking: Big bang updates at AGM?
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After 3 years of playing second fiddle, India's most valuable stock is ready to steal the show again. Shares of Nifty heavyweight Reliance Industries Ltd ( RIL ) have already climbed over 12% in calendar 2025, and analysts say the old warhorse is saddling up for a full-blown re-rating as FY26 shapes into a potential inflection point.RIL's Q4 results, which crushed Street expectations, were just the opening act. Brokers are now pegging targets as high as Rs 1,720 as against Monday's closing price of Rs 1,368, and the mood on the Street is shifting fast. RIL's transformation from a predominantly energy-centric empire to a digital and consumer-focused behemoth is now undeniable."RIL's transition to a new energy company is starting to bear fruit and we think it is back on an earnings growth path after flattish earnings in FY25. We expect a re-rating to follow this growth," Morgan Stanley analyst Mayank Maheshwari said, setting the tone.For much of the past two-three years, RIL's colossal businesses seemed fully priced, with little spark for earnings expansion. But as FY26 approaches, the old equations are breaking down and six big triggers are lining up to power a fresh rally.The days of heavy Jio capex are fading into the rearview mirror. Citi noted that capex likely peaked in FY24 with the completion of 5G rollouts, and intensity should now decline.Meanwhile, Jio is flexing its pricing muscle. "The recent tariff action indicates the shift in its stance towards monetisation and improves visibility on future tariff hikes," Citi said.Morgan Stanley sees ROCE rising 300 basis points to 9% by FY28, powered by tariff hikes and a higher mix of fixed wireless subscribers (with 2-3x higher ARPUs). Goldman Sachs expects another tariff hike in 2H that should propel Jio's EBITDA growth to 23% in FY26E.Jefferies, on the other hand, said: 'Over FY25-27, we expect Jio's ARPU to rise at a 13% CAGR to Rs 251, led by two tariff hikes of 10% each."RIL's green energy ambitions are morphing from PowerPoint slides into production lines. Morgan Stanley said the new energy business has started with a 1GW line and will be fully integrated with a 10GW capacity by 2026.The firm believes there's up to ₹100/share of value creation potential that markets haven't priced in yet. Expansion into polysilicon-to-module manufacturing, lithium-ion phosphate battery plants, and green hydrogen production near Kandla are all moving at scale.RIL is racing ahead on green hydrogen too, using NEL's alkaline electrolyzers, and aims to slash costs through mega-scale production on a 2,000-acre plot.Don't count out the old cash cow yet. Morgan Stanley projects a 13% earnings CAGR in the O2C division.Tailwinds include growth in domestic fuel retail, which is already raking in $300 million in annual EBITDA, and sweetening Middle East crude discounts. Chemicals margins could also benefit as China slaps tariffs on US competitors.After a decade of pause, RIL is ramping up PET and PVC capacity — a move that will be integrated with new U.S. ethane imports. Delivery of new ethane ships begins 2H26, setting up a 12-13% ROCE for chemical expansions despite some initial oversupply in caustic soda.Morgan Stanley expects the retail business' topline growth to revert to a solid 17% CAGR between FY25-FY28. It could help re-rate multiples in consumer retail and add up to Rs57/share to RIL's SOTP valuation, according to the brokerage firm.Catalysts include traction in new fashion brands, consumer packaged goods, and the pivot into 30-minute quick-commerce grocery delivery.Morgan Stanley said RIL's consumer brands business posted a topline of $1.4 billion in FY25 — about 8% of retail net revenues — but remains underappreciated.Goldman Sachs forecasts 1QFY26 and FY26 retail EBITDA growth of 19% and 15%, respectively, putting RIL back on the growth investor radar.Despite the 12% YTD rally, RIL's valuations still leave plenty of headroom.Goldman Sachs noted the stock is trading close to 1SD below its historical mean EV/EBITDA multiple, near their bear-case valuations across all major businesses. "We continue to see favourable risk-reward... Maintain Buy with revised 12-month SOTP-based TP of ₹1,645," the brokerage said.JP Morgan is similarly bullish: "RIL valuations imply a ~25% holding company discount for its major subsidiaries. Continued strength in Retail and higher telecom tariffs could drive share price higher," it said, pegging a new March-26 price target of ₹1,530 — implying an 18% upside.The Street is bracing for fireworks at RIL's upcoming AGM.A potential IPO or stake monetisation for Jio Platforms could unlock massive value. HSBC said Jio is poised to monetise a further stake to bring down net debt and "discover value for its existing private investors" who came on board during the 2020 fundraising spree.: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)