JPMorgan Maintains Overweight Rating on Reliance Industries, Sees Comfortable Relative Valuation

Global brokerage JPMorgan has reiterated its Overweight call on Reliance Industries (RIL), saying the conglomerate's relative valuation remains comfortable even after the recent correction, but cautioning that the oil-to-chemicals (O2C) business is the "uncertain spot" in the near term.

The brokerage has retained its price target at Rs 1,675 for March 2027, implying upside from the previous closing price of Rs 1,365.

"In a market where most stocks trade well above historical valuations, RIL's fair relative valuation is an attraction, in our view," JPMorgan said, adding that the stock's holding company discount has widened to around 20%.

At the same time, the report underscores that near‑term outcomes for refining and petchem are hard to read. "Outcomes for RIL's Refining and Petchem (O2C) businesses are uncertain in the very near term," the analysts wrote, pointing to a disconnect between sharply higher implied margins and what may finally flow into the profit and loss account.

JPMorgan noted that diesel cracks have "spiked post‑war" and that Excel‑calculated GRMs for RIL are up close to $40-50/barrel, but warned that actual realizations will be "materially dampened" by elevated crude premiums and shipping costs, changes to export duties, the need to produce more LPG, losses in retail fuel sales, and high price volatility.

"The RIL stock has given up its initial March outperformance on worries of translation of calculated margins to the P&L," the brokerage said.

Even so, JPMorgan is constructive on the medium-term O2C outlook, arguing that FY27 (and possibly FY28) refining and petchem margins are likely to be higher than earlier assumed. On refining, the house expects demand to be "supported by the need to refill depleted inventories" and notes that "material capacity is shut in the near term" in the Middle East, while global refining capacity additions are expected to peak this year, which should be structurally supportive of GRMs.

On petchem, it flagged Reliance's ethane- and off-gas-based crackers, "whose margins expand with higher crude," supply disruptions due to the Middle East conflict, and a tighter cotton outlook that could support polyester chain margins.

The brokerage also highlighted strong earnings sensitivity to the O2C cycle. "Every $1/bbl increase in GRM drives RIL's consolidated FY27 EBITDA/EPS by 2%/5%," it said, adding that every $100/tonne increase in polyester chain or ethane-cracking margins can lift FY27 EPS by 2-3%.

Offsetting this, the key risk to forecasts comes from assumed price increases in other businesses, particularly retail and other consumer-facing segments, which could be delayed in the wake of the recent macro shock. "If these were to be pushed out… then FY27 consolidated EBITDA/EPS could be hurt by 3%/4%," JPMorgan cautioned, though it believes higher O2C margins can compensate.

On sum-of-the-parts valuation, JPMorgan values O2C at Rs 363 per share, E&P at Rs 68, and retail at Rs 621 per share, after applying FY28 EV/EBITDA multiples and adjusting for net debt and spectrum liabilities, to arrive at a target value of Rs 1,675 per share.

The report points out that Reliance Retail's implied valuation, about 31x blended FY28E EBITDA, is now below DMart's 40-45x, leaving scope for "crystallisation of retail valuation upside" to drive further gains in the stock.

Historically, RIL's earnings were driven by capex cycles and margin swings, keeping free cash flow materially negative over the last three years, the brokerage said. With an EBITDA run rate of around USD 20 billion a year and management guiding to net debt-to-EBITDA below 1x, JPMorgan expects the group to "deliver positive free cash flow" even as it sustains elevated capex on New Energy, retail, and petchem expansions.

Summing up its stance, JPMorgan wrote that further stock returns will require either "stronger refining/petchem margins" or "higher valuations for Reliance Retail," but stressed that current relative valuations and the prospect of improved FY27 O2C margins justify staying Overweight on the stock.