Motilal Oswal is not building in any contribution from the New Energy business till financial year 2027, although it believes that with scale and cost superiority, this segment could become the key profit driver for Reliance Industries in the long-term.

Brokerage firm Motilal Oswal believes that shares of Reliance Industries Ltd. offer a "compelling" risk-reward and that the company's free cash flow generation is likely to pick-up going forward.

Motilal Oswal has a "buy" recommendation with a price target of ₹1,580, which comes with a potential upside of 20% from Friday's closing levels.

Reliance Industries shares have underperformed the benchmark indices, Bharti Airtel and other organised retail peers over the last few years despite similar or superior growth in Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). The brokerage attributed the underperformance to higher capex in the retail business, Jio and the lack of Free Cash Flow (FCF) generation.

"We believe that the capex has likely peaked and we expect RIL to generate free cash flow of over ₹1 lakh crore over financial year 2024 - 2027," the brokerage wrote, adding that Reliance Industries is trading close to its bear-case valuation

Motilal Oswal further wrote that Reliance Retail's growth remains the key for a potential re-rating and that growth will pick-up for the segment in the second half of the year.

The brokerage is not building in any contribution from the New Energy business till financial year 2027, although it believes that with scale and cost superiority, this segment could become the key profit driver for Reliance Industries in the long-term.

Reliance Industries' consolidated EBITDA and net profit can grow at a Compounded Annual Growth Rate (CAGR) of close to 10% over financial year 2024 - 2027 driven by Jio and Retail, according to Motilal Oswal, who also expects earnings to recover for the O2C segment, courtesy of better refining margins.

It has assigned an enterprise value of ₹445 per share for the standalone business, and an equity valuation of ₹530 per share and ₹600 per share respectively to its stake in Jio Platforms and Reliance Retail respectively. While the new energy business is assigned a value of ₹44 per share, the stake in the Disney JV is valued at ₹26 per share.

Shares of Reliance Industries ended 0.8% lower on Friday at ₹1,311.6. The stock is up only 1.3% so far in 2024.

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