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Reliance Industries (RIL), a behemoth in the Indian corporate landscape, has recently faced significant headwinds in the stock market. The article details a concerning 25% plunge in RIL shares from their peak value, translating to a staggering Rs 5.4 lakh crore erosion in market capitalization. This downturn is attributed primarily to sustained selling pressure from Foreign Institutional Investors (FIIs), coupled with concerns surrounding a retail slowdown and weakened refining margins. The confluence of these factors has resulted in RIL's underperformance compared to the Nifty index, creating a pervasive sense of negative sentiment among investors. The article emphasizes the magnitude of the decline, highlighting the substantial wealth destruction experienced by shareholders. This initial drop sets the stage for a deeper exploration of the underlying causes, analyst perspectives, and potential recovery scenarios.
The article acknowledges a recent 4% recovery in RIL shares, suggesting the presence of value buying at lower price levels. However, it cautiously emphasizes the uncertain sustainability of this upward trend. This brief respite provides a glimmer of hope amidst the prevailing negativity, but the article remains skeptical, questioning whether it represents a genuine turnaround or merely a temporary correction. The mention of 'value buying' implies that some investors perceive RIL's current valuation as attractive, potentially signaling an undervaluation based on the company's intrinsic worth. However, the uncertainty surrounding the recovery underscores the complex interplay of market forces and investor sentiment influencing RIL's stock performance.
In a counterpoint to the prevailing pessimism, Jefferies analysts offer a more optimistic perspective, arguing that current valuations are excessively negative. They highlight the discrepancy between RIL's market capitalization and the implied enterprise value of its retail division, which they believe is significantly undervalued compared to its previous funding round valuation. Jefferies forecasts a robust 15% retail growth in FY26, driven by both same-store sales growth and expansion initiatives. They also point to potential positive catalysts, including tariff increases in the telecom sector, the prospect of Jio's listing, and improvements in the O2C (Oil to Chemicals) business. Based on these factors, Jefferies maintains their 'Buy' recommendation with a target price of Rs 1,660. This bullish outlook contrasts sharply with the negative sentiment driving the stock's decline, presenting a contrasting viewpoint that challenges the prevailing narrative.
The article further elaborates on the positive outlook for Jio, RIL's telecom arm, projecting a strong revenue CAGR of 18% and an EBITDA CAGR of 22% for FY25-27. This growth is expected to be fueled by increasing mobile tariffs and the expansion of broadband services. The article emphasizes Jio's untapped potential for ARPU (Average Revenue Per User) growth, considering that previous tariff adjustments have not yet been fully reflected in revenues. The positive outlook for Jio serves as a crucial pillar of support for RIL's overall valuation, as the telecom business has emerged as a significant growth engine for the company. The potential for further tariff hikes and subscriber additions reinforces this positive trajectory.
Kotak Institutional Equities has also upgraded their rating on RIL to 'Buy', with a target price of Rs 1,400. While they have slightly revised downward their FY26/27 EBITDA forecasts, they still project a healthy 11% earnings CAGR through FY24-27. Kotak anticipates a gradual improvement in the retail sector, coupled with potential growth drivers such as a telecom IPO and tariff increases. This upgrade from Kotak further strengthens the argument for a potential revaluation of RIL's stock, based on the company's growth prospects in the telecom and retail sectors. The anticipation of a telecom IPO underscores the potential for unlocking value within RIL's various business segments.
The article mentions that RIL's retail division is currently undergoing a streamlining process, involving the closure of non-performing outlets while continuing to expand its overall footprint. This consolidation phase is expected to conclude by FY25, paving the way for a planned retail space addition of 6-7 million sq. ft in FY26-27. This strategic initiative suggests that RIL is actively managing its retail operations to optimize profitability and position itself for future growth. The focus on expanding retail space indicates a long-term commitment to the retail sector, despite the current challenges.
In contrast to the optimistic views of Jefferies and Kotak, ICICIdirect.com's Head of Research, Pankaj Pandey, expresses reservations about RIL's recovery prospects. While acknowledging that valuations are comforting, he points out that Jio is the only segment performing well. He anticipates another price hike in the telecom sector but remains cautious about the retail sector's performance outside of end-of-season sales. Pandey also highlights the challenges faced by the oil and gas sector, with margins yet to improve and FIIs continuing to withdraw from oil and gas stocks. This cautious perspective provides a more balanced view, acknowledging the potential headwinds that could hinder RIL's recovery.
The article further reveals a significant decline in FII ownership in RIL since September 2022, dropping from 23.6% in Q2 of FY23 to 19.6% in Q3 of FY25. The energy sector has witnessed additional FII withdrawals of Rs 5,000 crore in the past two months. This decline in FII ownership is a cause for concern, as it indicates a lack of confidence among foreign investors in RIL's prospects. The continued outflow of funds from the energy sector further exacerbates the challenges faced by RIL's O2C division.
The refining sector is facing increased challenges due to heightened Russian sanctions and US tariff implications. RIL's O2C division continues to experience pressure from weak global refining margins and low petrochemical spreads. These external factors are impacting RIL's profitability and contributing to the overall negative sentiment surrounding the stock. The article highlights the vulnerability of the refining sector to geopolitical events and global economic conditions.
In conclusion, the article suggests that RIL's current valuation might present an opportunity, considering the extensive negative sentiment already reflected in prices. The company's underperformance compared to the Nifty indicates that adverse factors have been thoroughly priced in. Potential improvements in Jio's performance, retail sector stabilization, and O2C division recovery could trigger positive revaluation. The recent 4% increase in share price indicates renewed investor interest, though uncertainty remains about whether this represents a sustained recovery or a temporary uptick. The article concludes by highlighting the contrasting views among analysts, emphasizing the complex factors influencing RIL's stock performance and the uncertainty surrounding its future trajectory. The sustainability of any recovery hinges on a confluence of factors, including improvements in Jio's profitability, stabilization in the retail sector, and a rebound in the O2C division's performance. Furthermore, the influence of external factors such as global refining margins, geopolitical events, and FII investment flows will continue to play a significant role in shaping RIL's stock market performance. This complex interplay of internal and external forces underscores the challenges and opportunities facing Reliance Industries as it navigates the dynamic landscape of the Indian stock market.
Source: RIL shares plunge 25% from peak! Rs 5.4 lakh crore wiped out