New Delhi, Nov 24 - Reliance Industries Ltd has experienced a notable decline, with its stock down 22 percent since July 8, attributed to weak refining margins and disappointing retail growth, according to a report by JP Morgan.
While refining margins have recently improved, the outlook for retail growth remains uncertain. The company, led by billionaire Mukesh Ambani, operates in three primary sectors: oil refining and petrochemicals, telecom (Jio), and retail, along with media and new energy divisions.
Reliance's retail and telecom segments now contribute approximately 50 percent of the total consolidated EBITDA for FY24. JP Morgan projects these sectors will drive nearly all net EBITDA growth over the next three years, with an annual EBITDA run-rate of USD 20 billion.
Despite the challenges, Reliance is expected to generate positive free cash flow over the next three years, even amid significant capital expenditures for new energy projects and retail expansions.
JP Morgan noted two critical factors affecting performance: a sharp decline in refining margins starting in June and ongoing revenue growth issues within Reliance Retail. Recent improvements in refining margins are expected to enhance third-quarter performance.
The brokerage also highlighted concerns regarding retail growth, which has been impacted by a broader retail slowdown and internal restructuring. Investor apprehensions about the effects of Quick Commerce persist.
Initial solar capacities are anticipated to be commissioned by March, although Reliance has not planned to sell output to third parties. The current strong local demand may influence this strategy.
Additionally, the anticipated public listings of Jio and Retail may face delays due to recent market volatility and the large scale of these offerings. JP Morgan has revised its retail forecasts, reducing FY25-26 EBITDA estimates by 10-15 percent, though this will only slightly impact overall profit forecasts.