Reliance Industries Ltd

Investment Thesis

Reliance Industries is not a single business — it is four distinct secular growth stories bundled into one listed entity. The market has historically valued it as an O2C (Oil-to-Chemicals) company, which understates the intrinsic value of Jio Platforms and Reliance Retail. Our BUY thesis rests on three legs: digital monetisation inflection, O2C normalisation, and a Retail re-rating that the street is consistently late to price.

Jio Platforms: The Compounding Engine

Jio crossed 450 million subscribers in FY24, making it the world's third-largest telecom operator by subscribers. But the subscriber count is a distraction — the real story is ARPU. At ₹181/month, Jio's ARPU is roughly half of what Airtel charges its postpaid base and a fraction of what mature telecom markets command. The headroom is structural, not cyclical. With 5G rollout complete across 8,000+ cities, Jio is now positioned to migrate subscribers to higher-value plans. Management has guided for ARPU of ₹200+ by FY25 and ₹250+ medium-term. A move to ₹250 ARPU at current subscriber count implies ₹1.35 lakh Cr in annualised revenue versus ₹92,000 Cr today — that is a 47% revenue uplift without a single new subscriber.

Jio Financial Services (JFSL), demerged in FY24, adds an optionality layer the market has yet to price into the parent. If JFSL scales its NBFC and insurance verticals to 5% market share in a decade, the value creation is substantial and accrues to legacy Reliance shareholders via their JFSL holding.

O2C: Mean Reversion, Not a Structural Decline

FY24 was an anomalous year for O2C — GRMs compressed to $8.9/bbl (Jamnagar complex) against a cycle average of $10.5–11/bbl. The culprit was a combination of European demand weakness and Chinese refinery capacity additions flooding the Asian product market. These are transient factors. Jamnagar's complexity advantage (Nelson Complexity Index of 21.1 vs. global average of 10–12) structurally protects it during product spread volatility. We model a GRM recovery to $10.5/bbl in FY25E and $11/bbl in FY26E, which adds ₹12,000–16,000 Cr to EBITDA from the O2C trough.

The petrochemical downstream is equally important: RIL's integrated cracker-to-polymer chain insulates margins from naphtha price swings in ways pure refiners cannot replicate.

Valuation

A sum-of-the-parts framework across the four segments yields a consolidated equity value in the range of ₹22–24 lakh Cr, implying meaningful upside from current market capitalisation:

• O2C + E&P at 7x FY26E EBITDA → ₹9.2 lakh Cr
• Jio Platforms at 18x FY26E EBITDA → ₹8.8 lakh Cr
• Reliance Retail at 30x FY26E EBITDA → ₹5.1 lakh Cr
• New Energy + Others at book value → ₹1.2 lakh Cr
• Less: Net Debt → (₹1.17 lakh Cr)
• SOTP Equity Value → ~₹23.1 lakh Cr

The key re-rating catalyst is a Reliance Retail listing — if executed at prevailing consumer retail multiples, it would surface value currently buried inside the conglomerate discount. Management has hinted at this timeline repeatedly without committing; any formal announcement would be a material positive.