Expansion Into Next-Gen Telecom And AI Services Like JioAirFiber And JioBrain Will Strengthen Future Prospects

Key Takeaways

• Expansion of 5G services and new AI products could boost subscriber growth and earnings, positioning Reliance as a telecom and AI leader.
  
• Retail growth from festive demand and enhanced domestic production strategies could drive revenue growth and margin improvements.
  
• Reliance Industries' revenue and margins are susceptible to consumer demand, investment returns, tariff hikes, geopolitical tensions, and competition pressures.

Catalysts

Engages in hydrocarbon exploration and production, oil and chemicals, textile, retail, digital, material and composites, renewables, and financial services businesses worldwide.

• Expansion of 5G services and the JioAirFiber product is unlocking significant demand from outside the top 1,000 cities and towns in India, potentially increasing the subscriber base and revenues from telecom services. [Revenue]
  
• The adoption of AI infrastructure and services, such as JioBrain and AI-Cloud, aims to position Reliance as a leader in AI offerings, likely impacting earnings positively through new product lines and service offerings. [Earnings]
  
• The strong growth in the retail segment driven by festive demand and new store expansions indicates potential for sustained revenue growth and improved net margins due to operational efficiencies and higher sales volume. [Net Margins]
  
• The plan to increase domestic PVC production and enhance virtual ethane pipeline capacity indicates a strategic move to capitalize on high domestic demand and import substitution, which could result in increased sales and margin improvements in the O2C segment. [Earnings]
  
• Significant growth in digital non-connectivity revenues, driven by new digital services, indicates a diversified revenue stream that could boost overall company earnings and potentially lead to higher EPS. [Earnings]

Reliance Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reliance Industries's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 8.6% in 3 years time.
• Analysts expect earnings to reach ₹959.5 billion (and earnings per share of ₹71.46) by about January 2028, up from ₹691.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹1207.4 billion in earnings, and the most bearish expecting ₹745.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.0x on those 2028 earnings, up from 22.7x today. This future PE is greater than the current PE for the GB Oil and Gas industry at 20.6x.
• Analysts expect the number of shares outstanding to grow by 1.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.59%, as per the Simply Wall St company report.

Reliance Industries Future Earnings Per Share Growth

Risks

• The overall performance of Reliance Industries is heavily reliant on consumer and festive demand, which is unpredictable and can fluctuate based on external economic conditions. Any downturn in consumer spending could negatively impact revenue and net margins.
  
• The company's ambitious expansion plans, particularly those in high-capital areas like retail and petrochemicals, necessitate substantial investments. If these expansions do not generate the anticipated returns, it could exert pressure on earnings and increase net debt levels.
  
• Reliance's success in the telecommunications segment, particularly Jio, is contingent on maintaining tariff hikes. Resistance to these increases or a slowdown in customer acquisition could adversely affect revenue growth and profitability.
  
• The oil and gas segment faces risks from geopolitical tensions and fluctuating global oil prices, which could impact refining margins and overall earnings. Any major disruption can lead to lower revenue and profitability.
  
• Increased competition from other telecom service providers or retail businesses could demand aggressive pricing or increased marketing expenses, potentially squeezing net margins and affecting earnings.
  

Valuation

• The analysts have a consensus price target of ₹1568.08 for Reliance Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1827.0, and the most bearish reporting a price target of just ₹1300.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹11124.6 billion, earnings will come to ₹959.5 billion, and it would be trading on a PE ratio of 33.0x, assuming you use a discount rate of 14.6%.
• Given the current share price of ₹1235.5, the analyst's price target of ₹1568.08 is 21.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.