RIL shares dip 1% after Q2 results. What should investors do?

Reliance Industries share price: The dip, driven by weaker-than-expected performance in its oil-to-chemicals (O2C) segment, has left investors and analysts contemplating their next move.

In Short

• RIL shares drop over 1% after Q2 profit declines 5%
• Analysts advise holding or accumulating RIL shares despite volatility
• Jio's growth potential remains strong amid broader market challenges

Reliance Industries Limited (RIL) shares declined by over 1% after the company posted a 5% drop in net profit for the second quarter. At 12:30 pm, shares of the Mukesh Ambani-led conglomerate were down 1.20% at Rs 2,712.30 on the Bombay Stock Exchange (BSE).

The dip, driven by weaker-than-expected performance in its oil-to-chemicals (O2C) segment, has left investors and analysts contemplating their next move.

RIL reported a consolidated net profit of Rs 16,563 crore for the quarter ending September, down 5% from the previous year. The decline was largely attributed to softness in the O2C business, which missed estimates and impacted overall profitability.

WHAT SHOULD INVESTORS DO?

Motilal Oswal maintained its buy rating on Reliance but adjusted its target price downward, from Rs 3,410 to Rs 3,255. The brokerage trimmed its FY25 and FY26 consolidated EBITDA estimates by 1-2%, while reducing PAT forecasts by 6% and 3%, respectively.

The revision comes after adjusting estimates for RIL’s core businesses: standalone earnings were reduced by around 8%, RJio by 1-3%, and the Retail segment by 2-10%.

Jefferies, with a target price of Rs 3,400, also acknowledged the weaker-than-expected Q2 results, particularly in the O2C business, along with slight underperformance in both Jio and Retail.

However, Jefferies pointed out that the stock’s recent 14% correction has made the current valuation more attractive, presenting a potential buying opportunity for investors.

Similarly, CLSA noted that the recent pullback in RIL’s share price has brought it closer to a more conservative valuation, making it a favorable entry point.

Nomura, which maintains a buy call with a target price of Rs 3,450, sees significant triggers on the horizon.

The firm pointed to the anticipated launch of RIL’s new energy operations by March 2025 as a key driver of future growth. Additionally, the potential listing of either the Jio or Retail businesses within the next 12-15 months could provide further upside.

Motilal Oswal also highlighted that Jio is expected to be a major contributor to RIL’s EBITDA growth over the coming years, driven by frequent tariff hikes, market share gains, and the expansion of its home and enterprise businesses. Meanwhile, the Retail division is likely to recover as RIL optimises its store portfolio, expands its footprint, and explores new categories, including quick commerce.

During its recent AGM, RIL had indicated that its new energy business could add 50% or more to overall earnings in the next 5-7 years, eventually rivalling the profitability of the O2C segment.

Analysts believe that this emerging clean energy initiative could generate significantly higher value in the long term.

Therefore, despite the short-term pressure on RIL’s stock following its Q2 results, analysts remain optimistic about its long-term growth prospects. With upcoming catalysts like new energy ventures and potential listings of Jio or Retail, many brokerage firms are advising investors to hold or accumulate shares, while keeping an eye on near-term market volatility.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)