Shares of Reliance Industries (RIL) saw a notable surge of 1.9% on Thursday, March 6, reaching ₹1,198 on the National Stock Exchange (NSE), following the release of a bullish report by Jefferies, the global investment bank and financial services company. The stock movement marks a shift in sentiment for the oil-to-telecom conglomerate, which has faced challenges over the past year, including underperformance compared to the Nifty50 index.
Jefferies Report Highlights Underperformance and Recovery Potential
According to Jefferies, RIL’s recent underperformance—down by 21% in the last 12 months—has been primarily due to a slowdown in its retail division and subdued earnings in the Oil-to-Chemicals (O2C) business. In comparison, the Nifty50 index has seen a less than 1% decline over the same period. As of March 5, RIL’s stock was also trading 37% lower than its all-time high of ₹1,608.80, which it touched in July 2024.
Jefferies expressed that the pessimism surrounding RIL may be excessive, particularly in light of its current market capitalization. The report noted that the company’s retail business, which has an enterprise value of $48 billion, significantly underperforms its last funding round, where the retail division was valued at $106 billion. However, the report emphasized that RIL’s retail sector should see a 15% growth recovery by FY26, driven by an increase in same-store sales growth (SSG) and the addition of new stores.
The firm also highlighted several potential triggers for RIL’s stock recovery, including a tariff hike in the telecom sector, the possible listing of its telecom subsidiary Jio, and improvements in the O2C business’s profitability.
Workforce Reductions and Retail Sector Challenges
Despite these optimistic projections, RIL’s retail division has faced challenges, including a reduction in workforce. In the past year, major lifestyle, grocery retailers, and quick-service restaurants (QSRs)—including RIL—reduced their workforce by about 26,000 employees due to slower store expansions driven by declining consumer demand. According to reports, RIL’s retail division, along with other major retailers like Titan, Raymond, and Page, saw its workforce shrink by 17%, or approximately 52,000 employees, in FY24. This was a significant reversal from the hiring surge of the previous years and highlights the pressure the retail sector is under amid changing market dynamics.
Q3 FY25 Results: Positive Earnings Despite Rising Debt
In its most recent financial update, RIL reported a 7.4% rise in net profit for Q3 FY25, totaling ₹18,540 crore, or ₹13.70 per share, compared to ₹17,265 crore, or ₹12.76 per share, in the same quarter the previous year. Sequentially, the profit was also up from ₹16,563 crore in the previous quarter. The increase in profit was driven by a strong rebound in the retail business, growth in telecom earnings due to higher tariffs, and consistent performance from the O2C business.
The company’s profit before tax (EBITDA) rose 7.8% to ₹48,003 crore, despite a 7% increase in finance costs due to higher debt. As of December 31, 2024, RIL’s debt stood at ₹3.5 lakh crore, up from ₹3.36 lakh crore in the previous quarter.
In its O2C business, RIL’s twin refineries at Jamnagar and petrochemical plants delivered solid performance, with EBITDA rising 2.4% to ₹14,402 crore. Additionally, the fuel retail business, particularly Jio-bp—a joint venture with BP of the UK—posted the “highest ever quarterly sales” across both petrol and diesel, marking a significant achievement in the company’s energy segment.
Outlook for RIL
While the company faces short-term challenges in its retail sector and the broader macroeconomic environment, the positive signals from its Q3 results and Jefferies’ optimistic outlook for the future indicate a potential recovery for Reliance Industries. Analysts are watching closely for the realization of key catalysts, including the tariff hike, Jio’s listing, and continued improvement in O2C profitability. If these factors play out, RIL’s stock could recover its recent losses, and investors may see renewed confidence in the conglomerate’s diversified business model.
For now, RIL remains a key player in India’s economic landscape, with its strong presence in oil, telecom, and retail continuing to shape its performance in the evolving market.
