Reliance Industries shares: Goldman Sachs says selling in stock ‘overdone’, cuts target price

Following an over 17 per cent decline in the last one year, global brokerage firm Goldman Sachs said the recent sell-off in Reliance Industries Ltd (RIL) shares is “overdone,” with the stock price now nearing its “bear case” valuation. 

The brokerage firm reiterated its “buy” rating on RIL while reducing its price target to ₹1,595, implying a potential upside of 26 per cent from Thursday’s closing levels. This revised target is a slight reduction from the earlier target of ₹1,630.

This statement from Goldman Sachs is the fourth positive brokerage note on RIL issued within the week. Previously, Bernstein and Jefferies had reaffirmed their optimistic views on the Nifty 50 heavyweight, citing the company’s attractive valuations.

Goldman Sachs emphasised that its bullish stance stems from expectations of a recovery in refining margins, another round of telecom tariff hikes anticipated in FY26, the retail business returning to growth, and the anticipated launch of the new energy giga complex.

The brokerage acknowledged that its thesis of returns expansion has taken longer than initially expected. While Jio’s returns have already begun to improve, the retail segment’s inflection point, driven by same-store sales growth (SSSG), is yet to materialize.

However, Goldman Sachs remains confident that RIL’s FY26 EBITDA will grow by 24 per cent year-on-year, supported by favourable dynamics such as large permanent capacity closures in the refining sector in CY25, macroeconomic improvements driving retail sales, and progress in the energy segment.

Revised Financial Projections

Goldman Sachs revised its EBITDA estimates for FY25, FY26, and FY27 downward by 2.8 per cent, 4.1 per cent, and 3.9 per cent, respectively. The adjustments reflect a range of challenges, including updated refining margin expectations, a delay in the full commissioning of the petrochemical capacity expansion to FY27, lower-than-expected telecom subscriber additions, and reduced growth in retail EBITDA due to management’s recalibration of its business strategy.

Q3 FY25 Earnings Forecast

For the third quarter of FY25, Goldman Sachs anticipates RIL’s core EBITDA to grow 5 per cent sequentially but remain flat year-on-year. The energy segment’s EBITDA is expected to stay flat quarter-on-quarter as gains from improved refining margins are offset by weaker performance in the petrochemical segment. On refining, the brokerage predicts a sequential increase in net GRM (Gross Refining Margin) to $8.7 per barrel, a 6 per cent quarter-on-quarter improvement, driven by stronger supply-demand dynamics outside of China.

In the telecommunications business, Jio Infocomm is forecast to achieve a 6 per cent quarter-on-quarter revenue growth and a 24 per cent year-on-year EBITDA growth, with margins improving to 54.7 per cent from 53.1 per cent in Q2 FY25. Goldman Sachs expects Jio to reverse its subscriber decline seen in Q2, adding approximately 3.5 million subscribers during Q3 FY25. The brokerage projects full-year FY25 revenue growth of 18 per cent and EBITDA growth of 21 per cent for Jio Platforms, with faster growth of 44 per cent in non-connectivity revenues, which now account for approximately 11 per cent of Jio’s total revenue.

The retail segment is anticipated to deliver a 5 per cent year-on-year sales growth, rebounding from the declines observed in the first half of FY25. However, same-store sales growth has remained muted due to macroeconomic factors such as high food inflation and reduced urban spending. Goldman Sachs believes the restructuring and streamlining of retail operations flagged by management will continue to weigh on earnings through the fourth quarter.

Valuation and Key Risks

Goldman Sachs continues to value RIL using a sum-of-the-parts (SOTP) approach. The refining and petrochemical business is valued at 8.0x FY26 EBITDA, the offline retail segment at 33.0x FY26 EBITDA, and the high-growth technology, media, and telecom (TMT) business using a discounted cash flow (DCF) model, with assumptions of a 10.5 per cent WACC and 4 per cent terminal growth rate.

Goldman Sachs highlighted several downside risks for RIL, including lower-than-expected refining and chemical margins, weaker-than-expected ARPU (Average Revenue Per User), slower market share gains and profitability in the retail business, potential delays in project execution, and higher future capital expenditures.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.