Mukesh Ambani-led Reliance Industries has the potential to grow by 19% in FY26: Bernstein Research

Brokerage Bernstein noted that Reliance Industries Limited, led by Mukesh Ambani, is poised for a recovery cycle due to various factors. The brokerage anticipated a positive recovery for Reliance Industries, fueled by: a 12% increase in Jio ARPU without tariff hikes, along with a 4-5% growth in subscribers;
a return to double-digit EBITDA growth for Retail; an upturn in GRM margins following a decline from $9/bbl in FY24

The earnings growth is expected to be driven by Telecom & Retail segments, with refining margins also expected to rebound. Bernstein has adjusted its target price to Rs 1,520, representing a 25% upside potential.

"After a difficult 2024, we see a favorable set up for Reliance into 2025. We believe 2025 will see a recovery cycle for Reliance led by (1) Jio ARPU increase of 12% (w/o tariff hikes) and subs of 4-5% (2) Retail to revert to double-digit EBITDA growth and (3) increase in GRM margins (after a decline from $9/bbl in FY24). We expect earnings growth to be led by Telecom & Retail, while refining margins see a rebound. We update our TP to Rs 1,520 (25% upside)," the brokerage said.

The brokerage noted:

> After experiencing a $50 billion decrease in market capitalization since September 24th, driven by a 13% reduction in EPS and a 10% decrease in EBITDA consensus earnings, we believe that Reliance's EBITDA has hit a low point and has the potential to grow by 19% or more in FY26. Valuations are currently at a 3-year low, making the risk-reward ratio attractive.

> Telecom will continue to shine as an ARPU increase is reflected in earnings, while capital expenditures continue to decrease. We anticipate approximately a 17% compound annual growth rate in revenue for Jio over the next three years, with a strong 14%+ increase in ARPU in FY26. Market share gains will be consistent as Jio reaches around 500 million subscribers and approximately 48% revenue share by FY26.

> Retail is expected to bounce back after facing challenges due to store rationalization and macroeconomic factors affecting apparel. We foresee a recovery in Retail following store rationalization and a return to 15% growth in FY26.

> Refining margins have improved to sustain higher rates after two difficult quarters. Gross refining margins (GRMs) have started to increase (+5.4% year-over-year in FY26) and are no longer negatively impacting EBITDA margins. Reliance will benefit from a weaker Indian Rupee. In the New Energy sector, the company continues to expand its solar and battery capacity.

> Valuations are attractive. Following the correction in the second half of the year, RIL is currently trading at 10.1x 1-year forward EV/EBITDA, a 17% discount compared to its 3-year average EV/EBITDA. We anticipate the free cash flow engine to improve over FY25-27 with a steady state EBITDA of around $22 billion. The risk/reward ratio is favorable.

"Overall we expect EPS to grow by ~20% CAGR to FY26E. Key catalysts include improving FCF as the capex cycle turns, retail recovery & potential spin-offs. EPS cut in FY25E/26E from 15-20% correction in consolidated Others revenue. We rate Reliance Industries OP and decrease our PT to INR 1,520 (25% upside potential)," the brokerage said.

The brokerage revised its target price to Rs 1,520 implying a 25% upside.

"Our Rs 1,520 target price is based on a sum-of-the-parts methodology, which is derived by:

• For Digital Services segment, we value Jio (Telecom Services and Broadband) after rolling over to Sep’26 (earlier Jun’26) at a target multiple to 12x LTM Sep’26 EV/EBITDA multiple (inline with India telecom peers).

• We value Reliance Retail segment based on Core retail, Non-core retail & eCommerce. Offline retail (incl Grocery, Apparel and Electronics) and the operational leverage built into the business, we now value Offline retail at 30x LTM Sep’26 EV/EBITDA from 32x LTM Jun’26 earlier. We value Non-Core retail on a 7x LTM Sep'26 EV/EBITDA multiple (lower than 9x earlier). We value E-Commerce at 2x LTM Sep’26/Sales multiple (lower than 3x earlier).

• We value the Refinery and petrochemical segments on 7.0x FY26 EV/EBITDA, based on comparable peer multiples (at the higher end of the regional peer multiple).

• We value the New Energy segment on 1.1x FY27 Sales and Upstream Oil & Gas on 4.0x FY26 EBITDA based on comparable peer multiples.