Goldman Sachs forecasts bright prospects for Reliance Industries Limited despite stock rally

RIL has allocated substantial capital towards enhancing scale, integration, and cost competitiveness in its oil-to-chemical businesses, investing approximately USD 30 billion between FY13 and FY18.

Reliance Industries Limited (RIL), has made substantial investments totalling over USD 125 billion in capital expenditure (capex) over the past decade, predominantly in the hydrocarbon and telecom sectors, both of which typically entail longer gestation periods exceeding five years. According to Goldman Sachs, Reliance Industries Limited (RIL) emerges as an attractive investment opportunity despite recent market rallies.

RIL has allocated substantial capital towards enhancing scale, integration, and cost competitiveness in its oil-to-chemical businesses, investing approximately USD 30 billion between FY13 and FY18. Additionally, the conglomerate has poured USD 60 billion into developing 4G/5G capabilities, positioning itself as a high-growth player in the telecom sector.

Goldman Sachs expects RIL's capital expenditure (capex) to peak at USD 17.6 billion in FY23, gradually easing to USD 11.2 billion by FY26, indicating a strategic approach towards optimizing investment efficiency. RIL's plans for expansion in the retail segment have not gone unnoticed.

With aggressive store expansions, the company has more than doubled its offline square footage area from 34 million square feet in FY21 to 73 million square feet in 3Q FY24, reflecting a concerted effort to capture a larger market share. Goldman Sachs anticipates that returns from these new business ventures will contribute to the company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) at an accelerated pace, outperforming market expectations.

Looking ahead, Goldman Sachs forecasts a sustainable EBITDA growth trajectory for RIL in the medium term, projecting a 17 per cent compound annual growth rate (CAGR) between FY24E and FY27E. The Goldman Sachs report underscores the favourable risk/reward balance for long-term investors in RIL, citing the conglomerate's robust investment strategies and growth prospects across key sectors.

This long-term investment horizon aligns well with Goldman Sachs' assessment, suggesting that RIL's strategic focus on these sectors positions it favourably for sustained growth. One of the key drivers of RIL's outperformance in the market, according to Goldman Sachs, lies in its ability to leverage expanding returns and valuation discovery through stake sales in newer ventures such as Jio and retail.

Despite the absence of significant contributions from these drivers over the past two years, rising returns from Jio and Reliance Retail are anticipated to bolster the company's value proposition in the coming years. RIL's strategic shift towards investing more in retail and upstream new energy segments, which offer high return potential with lower capital intensity, is expected to drive further value creation.

Additionally, the bank predicts that EBITDA from the retail and telecom businesses is poised to double, underscoring the growth prospects inherent in RIL's diversified portfolio. The Goldman Sachs report reinforces investor confidence in RIL's long-term vision and strategic initiatives, positioning the conglomerate as a compelling investment opportunity amid evolving market dynamics. (ANI)

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