Reliance Industries Shares Expected to Rise 54% by FY26 with Goldman Sachs ‘Buy’ Rating

Reliance Industries Shares

According to Goldman Sachs, RIL’s consolidated returns are poised for a turning point in FY24, and in FY27, its Cash Return on Cash Invested (CROCI) is expected to rise to a record high of 12 percent, up roughly 270 basis points from 2011.
Reliance Industries Ltd. has received a “buy” recommendation from Goldman Sachs, which sees a bull case with up to a 54% upside by FY26 and favorable risk-reward dynamics, value unlocking from the company’s Disney joint venture, and improved return on capital investments.
RIL’s overall performance should start to improve now that the capex cycle in two capital-intensive companies, Jio Telecom and retail, has peaked, according to Goldman Sachs analysts.

With a 17 percent return from the present price, the brokerage increased the target price for RIL shares to Rs 3,400 in the base case and Rs 4,495 in the bull scenario.
According to the brokerage, there are two reasons why Reliance Industries shares typically outperform the Indian market: growing returns and valuation discovery through stake sales in younger companies.
Both of these drivers have been mainly absent during the past two years, which may be the reason for the shares’ underperformance. The memo stated, “We anticipate growing returns in the near future, which may compound with additional potential value unlocked through prospective listings of consumer businesses.”

Goldman Sachs analysts estimate RIL’s consolidated returns will reach an inflection point in FY24, with its Cash Return on Cash Invested (CROCI) rising by roughly 270 basis points to 12 percent in FY27, the highest level since 2011.
The firm stated that RIL is exiting a series of long and expensive expenditure cycles. Reliance Industries has invested more than $125 billion in capex over the previous decade, primarily in hydrocarbon and telecom, which are more capex-intensive and have a gestation time of more than five years.
RIL’s investments over the next three years will be less capital-intensive, yield higher returns, and have a shorter gestation period, according to the company.

According to Goldman Sachs, Reliance Retail’s profits before interest, tax, depreciation, and amortization (EBITDA) are expected to nearly double between FY24-27, with the proportion of consolidated EBITDA climbing to 14.3 percent in FY27 from 12.4 percent in FY23. The brokerage estimates a positive EBITDA contribution from the new energy vertical beginning in FY25 and reaching $2.3 billion by FY30.
On a consolidated basis, Goldman Sachs analysts expect RIL’s free cash flow, which has largely remained negative due to high capex, to turn positive in FY25, with capex likely peaking, while EBITDA may increase by 20% year on year, driven by a telecom tariff hike, higher retail same-store sales growth, and a recovery in chemical margins.

Between FY24 and FY27, EBITDA is predicted to expand by 17 percent each year, with Retail EBITDA virtually doubling during this period, and by 22 percent per year in the telecom market, owing to rising telecom ARPU.

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