Reliance Industries Shares Decline: Understanding the Conglomerate’s Challenges
Reliance Industries Limited (RIL) experienced a notable decline in its stock price, falling by 2.7% to Rs 1,436.85 on the Bombay Stock Exchange (BSE) on Monday. This drop occurred despite the company announcing its highest-ever quarterly profit of Rs 30,783 crore for the first quarter of FY26. The impressive earnings were largely attributed to a one-time gain from the sale of its stake in Asian Paints, valued at Rs 8,924 crore, alongside reduced interest and tax expenses. However, concerns over disappointing operational performance in key segments, particularly Retail and Oil-to-Chemicals (O2C), dampened investor sentiment.
Operational Performance Concerns
Despite the record profit, multiple brokerages expressed concerns regarding RIL’s operational performance. Jefferies reported that the consolidated EBITDA fell 3% short of its estimates, with the O2C and Retail segments underperforming by 5% and 4%, respectively. The retail segment’s growth was particularly muted, registering only an 8% year-on-year increase, which analysts attributed to sluggish electronics sales due to an early monsoon and slower expansion efforts. Emkay also noted a miss in EBITDA and adjusted profit by 5% and 7%, respectively, citing similar reasons for the underperformance in the O2C and Retail segments.
Motilal Oswal highlighted that Reliance Retail’s operational EBITDA missed estimates by 7%, with revenue growth at 11%, significantly below the anticipated 16%. JPMorgan acknowledged the deceleration in retail growth but maintained an Overweight rating, raising its target price to Rs 1,695. The O2C business also faced challenges, with consolidated EBITDA down 4% quarter-on-quarter, missing estimates by 8%. Analysts noted that turnaround activities and a planned shutdown impacted output, although there remains optimism as global refining margins are expected to improve.
Bright Spot in Reliance Jio
In contrast to the challenges faced by its other segments, Reliance Jio emerged as a strong performer. The telecom arm reported a 5% increase in EBITDA quarter-on-quarter, exceeding estimates by 2%. This growth was supported by effective cost control measures and an increase in subscriber numbers, with the Average Revenue Per User (ARPU) rising to Rs 208.8. Reliance Jio added 9.9 million users during the quarter, showcasing its resilience amid the broader operational challenges faced by the company.
Analysts praised Jio’s performance, noting it stood in stark contrast to the sluggishness observed in the retail sector and the modest recovery in O2C. Despite the mixed results, RIL management remains optimistic about the future, reaffirming its goal to double EBITDA by 2029, with expectations that both Retail and Jio will double their earnings in the next three to four years.
Future Growth Prospects
Looking ahead, Reliance Industries is focusing on its new energy initiatives, which are anticipated to serve as a long-term growth engine. Brokerages predict that the establishment of a 10GW module-to-polysilicon facility will significantly enhance earnings by FY26. Prabhudas Lilladher has upgraded the stock to Accumulate, assigning a value of Rs 111 per share to the energy vertical. While most brokerages maintain bullish ratings with target prices ranging from Rs 1,500 to Rs 1,767, some analysts caution about potential short-term stock moderation, reflecting the mixed performance across RIL’s various business segments.
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