Reliance Industries shares near record high after Goldman Sachs bull case sees 54% upside

Goldman Sachs anticipates a turning point in Reliance Industries' consolidated returns by the financial year 2024, with its Cash Return on Cash Invested (CROCI) projected to expand by approximately 270 basis points to 12% by the financial year 2027, the highest since 2011.

Over the past decade, Reliance Industries has invested over $125 billion in capital expenditure, primarily in hydrocarbon and telecom sectors, typically requiring significant capital outlay and longer gestation periods exceeding five years. However, Goldman Sachs notes that the company's focus on new businesses such as Retail and New Energy over the next three years is less capital-intensive and offers higher returns with shorter gestation periods.

Goldman Sachs forecasts that Reliance Retail's Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) will nearly double between the financial years 2024 and 2027, with the share of consolidated EBITDA rising to 14.3% in the financial year 2027 from 12.4% in the financial year 2023.

Additionally, for the New Energy vertical, Goldman expects positive EBITDA contribution to commence from the financial year 2025 and reach $2.3 billion by the financial year 2030.

On a consolidated basis, Goldman Sachs expects RIL's free cash flow, which has largely remained negative due to the elevated capex, to turn positive in financial year 2025 with capex likely peaking out in the previous financial year, while EBITDA may expand by 20% year-on-year led by a telecom tariff hike, higher retail same-store sales growth and a recovery in chemical margins.

Retail EBITDA nearly doubling during this period

A 22% EBITDA CAGR in the telecom business, driven by higher telecom ARPU

The continued shift of consumers to smartphones and strong traction in fixed broadband

Petchem margin recovery driven by global demand and lower feedstock prices

Sustained strength in diesel cracks due to limited global spare capacity compounding with Opex reduction

Reliance Industries shares tend to outperform the Indian market during two scenarios, according to Goldman Sachs: One being expanding returns and two being valuation discovery through stake sales in newer businesses.

"Over the last two years, both these drivers were largely absent, potentially driving the shares' underperformance. We expect rising returns ahead which could compound with further potential value unlock through potential listings of consumer businesses," the note said.

Last week, brokerage firm UBS had also increased its price target on Reliance Industries to ₹3,400 from ₹3,000 earlier. This ₹3,400 price target is the highest for Reliance Industries on the street.

Shares of Reliance Industries are up 3.5% on Wednesday and are trading near their all-time high of ₹3,024. The stock is also the top contributor to the Nifty 50 gains.