Reliance Industries shares rally 6% after Q2 results. Here’s why Jefferies, others analysts see up to 47% upside

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Jefferies has maintained its Buy rating on the stock, with a target price of Rs 1,710, implying a potential upside of 47%.

Revenue from operations increased 29% YoY to Rs 3.32 lakh crore from Rs 2.58 lakh crore in the corresponding quarter last year. The oil-to-chemicals (O2C) segment was the biggest contributor to earnings growth, with EBITDA surging 68% YoY to a record Rs 25,203 crore from Rs 15,008 crore.

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Jefferies has maintained its Buy rating on the stock, with a target price of Rs 1,710, implying a potential upside of 47%. The brokerage said strong performance in the O2C segment helped consolidated EBITDA beat its estimates by 6%, offsetting a 6% miss in Retail. Core Retail growth and EBITDA declined YoY due to a shift in the festive calendar and the continued impact of quick commerce (QC) expansion.

Jefferies expects O2C profitability to remain elevated through the winter, supported by damage to refining infrastructure in the Middle East and Russia. The brokerage has raised its FY27 and FY28 EBITDA estimates by 6% and 2%, respectively. It noted that the stock is trading more than 2 standard deviations below its long-term average, indicating extremely pessimistic investor expectations.

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According to Jefferies, earnings upgrades and a recovery in Retail growth to the mid-teens could act as catalysts for a re-rating of the stock.

Nomura has cut its target price on Reliance to Rs 1,560 per share from Rs 1,690, while forecasting a fresh upside potential of 34%. The brokerage said consolidated EBITDA came in 9% above its estimate. The beat was largely driven by stronger-than-expected performance in the oil-to-chemicals (O2C) segment, while the upstream and telecom businesses performed in line with expectations. Retail EBITDA, however, fell 10% short of the brokerage's estimate.

The O2C business reported EBITDA of Rs 25,200 crore, compared with Nomura's estimate of Rs 20,300 crore. This marked a 48% sequential increase and a 68% YoY rise, making it the segment's strongest-ever quarterly performance. Despite broadly stable refining cracks quarter-on-quarter (QoQ) at multi-decade highs, with gasoil, aviation turbine fuel (ATF) and gasoline cracks rising 3.5 times, 3.7 times and 3 times, respectively, YoY, a lower crude basket cost drove the sequential improvement, better margin capture and higher throughput.

Nuvama Institutional Equities maintained its Buy rating on RIL, with a target price of Rs 1,703, implying an upside potential of 25%. The brokerage has, however, lowered its target from Rs 1,766, factoring in a 25% holding company discount following the Jio Platforms listing. It noted that RIL's modest net debt of Rs 1.17 lakh crore, down 1% year-on-year, keeps its weighted average cost of capital in check.

Nuvama said its Golden Refining Era thesis, which anticipates sustainable gross refining margins of more than $10 per barrel, remains intact. It added that the rollout of Reliance's New Energy business could contribute more than 50% to profit after tax over time and drive a valuation re-rating, including for the O2C business, supported by the company's net-zero carbon target for 2035.

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RIL has guided for an earnings contribution from its New Energy business starting FY28, following an accelerated rollout. The company has commenced operations at 6 GW of module and 5 GW of cell capacity, which it plans to increase to 20 GW by next year. Nuvama estimates this could add 5% to PAT.

However, the brokerage cautioned that continued weakness in the richly valued Retail business, trading at 27 times EV/EBITDA, could offset the stronger-than-expected performance of O2C, which trades at 12.5 times EV/EBITDA. RIL is currently valued at 18 times its FY28 estimated earnings per share.