Reliance Industries Ltd shares have fallen around 17% this year, underperforming the Nifty's roughly 8% decline, according to reports from The Economic Times. The stock has remained largely range-bound since the end of May, creating a sharp valuation puzzle as the company benefits from strong refining and petrochemical margins. Analysts attribute this disconnect to the market looking beyond current earnings boosts, focusing instead on evidence of recovery in Reliance Retail and progress in New Energy initiatives.
Petrochemical spreads have strengthened significantly, with Reliance's average polyethylene, polypropylene and polyethylene terephthalate margins rising 64% in the second quarter of FY27 compared with the end of February, as reported by Jefferies. The company's special economic zone refinery, which accounts for most of its refining capacity, benefits from being exempt from windfall taxes. Jefferies expects the strength in refining and petrochemicals to support Reliance's FY27 earnings and projects a 10% consolidated EBITDA compound annual growth rate between FY26 and FY29, maintaining a Buy rating and price target of ₹1,710.
The primary concern driving the stock's underperformance is the market's reluctance to assign full value to businesses with uneven earnings visibility, according to The Economic Times. JPMorgan estimates the current stock price implies a valuation of 7.5 times EBITDA for the O2C business, peer-comparable multiples for major subsidiaries and about a 25% holding company discount. The brokerage assigns no value to Reliance's proposed renewables venture, real estate holdings or rapidly growing FMCG revenues, with an Overweight rating and price target of ₹1,625.
The company expects to commission significant solar-cell and battery-cell manufacturing lines by March 2027, with JPMorgan expecting module installation in Kutch to begin after the monsoon, as reported by The Economic Times. JPMorgan previously assigned a present value of about ₹160 per share to the New Energy business, assuming Reliance installs about 70 gigawatts of modules over the next four years. Jefferies includes a target of investing $10 billion in the renewable production chain over three years, covering solar photovoltaic, energy storage, green hydrogen electrolyser manufacturing and fuel cells.
The market's primary concern centers on Reliance's ability to generate free cash flow while continuing investment across multiple businesses, according to The Economic Times. JPMorgan expects positive free cash flow as the company's EBITDA run rate approaches $20 billion annually, noting that Reliance's guidance to keep net debt-to-EBITDA below one time points towards improving cash generation. Under conservative scenarios, JPMorgan's sum-of-the-parts valuation could fall to around ₹1,100, assuming a 20 times EBITDA multiple for Retail and a 25% holding-company discount.
