Reliance Industries Ltd.'s earnings will be driven by only one segment in the coming quarters: telecom.
That's according according to JPMorgan, which does not expect petrochemicals and retail to contribute. Refining and petrochemical margins will remain in check, and retail earnings are modest, it said.
The company can, however, control telecom pricing and that can be a significant earnings and stock catalyst in the coming quarters, JPMorgan said.
The brokerage has an 'overweight' rating on the stock with a target price of Rs 3,100 apiece, implying an upside of 4%.
Shares of Reliance Industries Ltd. have tracked earnings, rising 23% in three months compared with 15% gain in Nifty 50. "Consensus estimates currently forecast RIL EPS growing at the same pace as that for the Nifty over the next two years," it said.
Before venturing into retail and telecom, RIL's earnings per share growth was determined by either capexânew refining/chemical capacities--or margin cycles. Capex cycles then tended to impact stock performance.
Reliance retail and telecom now account for 50% of total consolidated Ebitda, JPMorgan said. "These will account for 95% of Ebitda growth over the next three years."
Telecom Tariffs May Boost ARPUs
RIL has operated at negative free cash flows, driven by spending in telecom. As that fades, with an Ebitda run-rate of $20 billion a year, Reliance is expected to deliver positive free cash flow for the next three years, the note said.
JPMorgan estimates a 11-12% increase in average revenue per user for Reliance Jio Infocomm Ltd. in FY25/26, a little ahead of the three-year CAGR of 8.5%.
Telecom is the only variable within RIL's control in the near term.
Every Rs 10 change in ARPU assumptions for FY26 impacts profit by about 5%.
Refining, Petrochem Margins Capped
Commodity margins matter for Reliance as every dollar increase in refining margins changes RIL's profit by about 4%, according to JPMorgan. Every $50 per metric tonne increase in petrochemical spreads affects FY26 EPS by about 7%.
There isn't much RIL can do to drive refining/petrochem margins.
Global refining utilisations are likely to improve as supply growth is expected to lag demand hereon.
Most major petrochemicals are likely to remain oversupplied for some time; keeping margins in check.
Removal of the special additional excise duty on diesel could help net GRM.
Model Retail Contribution
Given its modest contribution to current earnings, outcomes at Reliance Retail Ltd. don't move over earnings much, JPMorgan said.
Every 1% change in FY26 revenue growth for Retail drives only 20-30 basis points change in consolidated RIL earnings.
Retail earnings can drive a valuation âcatch-up' on eventual listing.
Non-Earnings Catalysts
Apart from telecom, JPMorgan sees non-earnings potential valuation drivers over the coming quarters. These include:
The much anticipated listings for either Reliance Retail or Jio.
Any increased visibility on the $10-billion spend solar/electrolyser facilities.
Continued shift of Reliance's Editda from commodity to consumer earnings.
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