Reliance Surges Against Market Odds: Is the D-street Giant Finally Back?

Reliance share price: At a time when the D-street is witnessing a muted trajectory as markets continue to fall, shares of the Mukesh Ambani-led conglomerate seem to have made a comeback. Since the year's beginning, benchmark indices— Sensex and Nifty— have declined sharply by over 2%. But, for the shares of Reliance, the trajectory has been quite the opposite as the stock has surged by nearly 7% during the same period.

Undoubtedly, the recent Q3 figures have a lot to do with the optimism. With net profits surging by nearly 12% year-on-year (YoY), to Rs 21,930 crore, and revenue from operations increasing by 19.4% YoY, the quarterly figures clearly beat the D-street estimates.

But there is one more factor at play. As per analysts, shares of Reliance were already trading near its bear-case scenario, indicating a strong upside potential ahead. While this does leave limited room for potential downside, banners of caution are still present in the refinery segment. Plus, the new energy business might also take some time before robust profitability starts kicking in.

As for now, the bottom-line figures are definitely giving D-Street a reason to cheer.

Good. Better. Best. It’s all looking up

The second half of FY25 didn't go well for the conglomerate as its cash cow business, O2C (Oil-to-chemical) segment, witnessed a drop in margins. Overall profit figure declined by nearly 5% last quarter. Telecom, on the other hand, was the only segment that kept the growth graph steady for RIL. This eventually took a toll on the share price of the conglomerate, as the stock declined by 20% from its then 52-week-high.

However, Q3 came as a major relief. The company was able to beat D-Street estimates after nearly six months of pressure.

During the quarter under review, the revenue figure jumped by 7.7% YoY to Rs 2.67 lakh crore, setting the stage for a stellar performance across all segments. Retail, oil-to-chemicals and telecom all showed robust growth. In retail, profits soared 10% YoY, reaching Rs 3,458 crore. The oil-to-chemicals business bounced back with a 2.4% rise in Ebitda, hitting Rs 14,402 crore. Meanwhile, its telecom arm saw its subscriber base grow to 482.1 million in Q3, with ARPU (Average revenue per user) surpassing the Rs 200 mark per month.

A trend worth noting is that Reliance managed to clock strong growth even during the festive season, a period when much of India Inc. witnessed muted performance.

Reliance's retail arm was able to deliver strong results during this time.

"Retail revenue and Ebitda stood at Rs 796 billion and Rs 66 billion, respectively, with growth rebounding sharply—20% and 17% QoQ and 7% and 9% YoY. This was driven by a combination of strong festive demand, streamlining of operations and productivity gains, Citi stated in its report. Grocery revenue (B2C) shot up 37% year-on-year, while consumer electronics grew by 12%.

All-in-all the margin play remained strong which eventually came as a surprise for major brokerages.

"RIL is back on a growth path after six months of challenges. Q3FY25 earnings were better than the low expectations, but more importantly had the ingredients for the stock to re-rate back to mid-cycle multiples as the risk of earnings downgrades unwinds. (RIL) Move up one notch to #2 in (our) preference order," Morgon Stanley stated in a report.

After delivering a robust quarter result, all eyes have now shifted to the stock performance. Even as Reliance has been on an upward trajectory this year, the stock has been down by more than 18% in the last six months.

Good days ahead for Reliance shares?

Beyond D-Street, major global brokerage houses like Nomura, Goldman Sachs and Citi have maintained a Buy rating on Reliance.

With margins holding strong, the outlook for RIL looks promising according to analysts. On top of this, expectations of Jio’s IPO launch this year coupled with its new energy business gaining momentum, have further boosted the stock’s upside potential.

A strong revival in the demand view ahead also paints a favourable picture, particularly for RIL's telecom and retail business. Things look great ahead for the conglomerate.

However, there's always a catch in an outlook that seems too bright. And here, that catch is RIL's cash cow, O2C. To be more precise, the petrochemicals business.

During the earnings call, the management pointed out that margins remained steady as strong domestic demand helped offset the impact of global trends. "...in a way, the mixed trends that we saw in as far as the margin environment was concerned, based on global factors, did get compensated by the push in the domestic side, as well as the higher volumes that we had," said V. Srikanth, CFO, RIL.

Analysts believe that the uncertain margin scenario might add pressure on the upcoming quarters. "We see OTC earnings in FY26–27E remaining muted, considering the uncertain margin environment over the next 12–18 months," ICICI Direct stated in a report. Besides, any delays in monetising the new energy business could also affect the stock's performance.

Even in the telecom segment, multiple reports stated that Vi might launch its 5G plans at competitive pricing. This might trigger the current ARPU levels of Jio.

Considering all the key risks, analysts still believe that the shares are close to the bear case scenario, which makes the slide incline more towards potential upside.

Nomura has estimated an implied upside of 26.4% from the current market price (CMP). Goldman Sachs has also taken a near similar stance and kept the target price at Rs 1,590, implying an upside of 25.3% from CMP.

Going ahead, a lot will depend on how the trajectory of its major revenue generator pans out in the current global trends.