RIL shares: Reliance in bear grip; multiple re-rating triggers in 2025, says MOFSL

Reliance Industries Ltd (RIL) has multiple re-rating triggers in 2025 and that the risk-reward for the stock looks compelling, MOFSL said in its latest note. RIL shares underperformed the broader benchmark equity indices over the past few years and delivered negative returns in 2024, a first in the past 10 years. This underperformance was driven by growth moderation in Reliance Retail (RR) and weak refining and petchem cracks.

"After the steep correction, we believe the risk-reward is compelling as RIL now trades at our bear case valuation – Reliance Jio (RJio) at 10 per cent discount to Bharti’s current valuation, high-single-digit growth in core retail revenue/Ebitda and no improvement in O2C earnings over FY24-27E," MOFSL said.

The domestic brokerage said a moderation in capex intensity, a likely strong free cash flow (FCF) generation over FY24-27, and the balance sheet deleveraging by RIL are currently underappreciated.

"The start of gigafactories in New Energy (FY25 end), the potential listing of RJio (likely 2HCY25) and growth recovery in RR (FY26) are the key medium-term triggers for RIL. Reiterate BUY with a target of Rs 1,605 (bear: Rs 1,215; bull: Rs 1,930)," MOFSL said.

RIL shares closed at Rs 1245.90 on Friday, down 22.56 per cent from its 52-week high of Rs 1,608.95. MOFSL said RIL’s capex has likely peaked in FY24 with the completion of 5G rollouts. The brokerage said capex could increase in New Energy but will likely be funded by robust cash flow generation by RIL standalone. It expects RIL to generate cumulative FCF of Rs 90,000 crore over FY24-27, led by standalone and RJio, which should lead to further deleveraging.

RJio, MOFSL said, is likely to be the biggest earnings growth driver for RIL over the medium term, driven by more frequent tariff hikes, market share gains, and FWA ramp-up.

"With streamlining of operations coming to an end, we believe RR will get back to low-teen revenue/EBITDA growth from FY26 onward, driven by footprint addition and ramp-up of new categories/formats. After two quarters of weakness, GRM improved in 3Q, though petchem cracks are likely to remain subdued in the medium term," the brokerage said.