RIL Shares Drop 25% from Peak, Erasing Rs 5.4 Lakh Crore in Value
Reliance Industries Limited (RIL) shares have recently shown a modest recovery, rising 4% after a significant decline that saw the stock drop 25% from its peak of Rs 1,608.95 on July 8. This downturn was largely attributed to foreign institutional investors selling off shares amid a retail slowdown and weak refining margins, resulting in a staggering Rs 5.4 lakh crore loss in market value. Despite the recent uptick, analysts remain cautious about the sustainability of this recovery.
Decline and Recovery: A Rollercoaster Ride
The journey of RIL shares has been tumultuous over the past few months. After reaching a high in July, the stock faced a steep decline, underperforming the Nifty index by 10% since January 2024. This downturn has created a wave of negative sentiment among investors, as highlighted in a recent Economic Times report. However, recent trading sessions have sparked hope, with a 4% recovery indicating potential value buying at lower levels. Yet, the question remains: can this recovery be sustained?
Analysts from Jefferies have pointed out that the current market valuations for RIL are excessively negative. They noted that the market capitalization reflects an enterprise value of only $48 billion for RIL’s retail division, significantly lower than the $106 billion valuation from its last funding round. Jefferies anticipates a 15% growth in retail for FY26, driven by same-store sales growth and expansion efforts. They maintain a ‘Buy’ recommendation with a target price of Rs 1,660, citing several positive factors that could bolster RIL’s performance.
Positive Outlook for Jio and Retail Growth
The outlook for Jio, RIL’s telecommunications arm, remains optimistic. Analysts project a compound annual growth rate (CAGR) of 18% in revenue and 22% in EBITDA for FY25-27, fueled by increasing mobile tariffs and broadband expansion. The growth potential for average revenue per user (ARPU) is strong, especially as previous tariff adjustments have not yet fully translated into revenue gains. Kotak Institutional Equities has also raised its rating for RIL to ‘Buy,’ setting a target price of Rs 1,400. Despite minor downward revisions in EBITDA forecasts for FY26 and FY27, they expect an 11% earnings CAGR from FY24 to FY27. The gradual recovery of the retail sector, along with anticipated telecom IPOs and tariff increases, are seen as key growth drivers.
Challenges Ahead: Market Sentiment and External Factors
Despite the positive indicators, challenges remain for RIL. Pankaj Pandey, Head of Research at ICICIdirect.com, expressed skepticism about the recovery prospects. He noted that while valuations appear attractive, the only segment performing well is Jio. The retail sector continues to struggle, particularly outside of end-of-season sales, and oil and gas margins have yet to show improvement. Additionally, foreign institutional investors have significantly reduced their holdings in RIL, dropping from 23.6% in Q2 FY23 to 19.6% in Q3 FY25. The refining sector is also under pressure due to increased sanctions on Russia and the implications of U.S. tariffs. RIL’s O2C division faces challenges from weak global refining margins and low petrochemical spreads. While the current valuation may present an opportunity for investors, the extensive negative sentiment already reflected in the stock price raises questions about the potential for a turnaround.
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