Reliance Shares Undervalued, Retail Could Drive Next Rally

Reliance Industries shares remain below their estimated sum-of-the-parts (SOTP) valuation, despite a sharp recent rally, according to Gurmeet Chadha, managing partner and chief investment officer of Complete Circle. He believes the company’s oil-to-chemicals (O2C) performance, steady Jio business and the proposed listing of Jio Platforms are supporting investor sentiment. A stronger performance from the retail business could provide another significant catalyst for the stock in the coming quarters.

Speaking to CNBC-AWAAZ, Chadha discussed the factors behind the recent rise in Reliance Industries shares. The stock surged 11.6% to close at Rs 1,300 on Monday, reaching its day’s high. He said the market had not fully recognised the value of Reliance’s diverse businesses for an extended period.

Reliance Shares Continue to Trade Below Estimated SOTP Value

Chadha said Reliance Industries has historically traded at a discount to its sum-of-the-parts valuation. The SOTP method estimates a company’s value by assessing its individual businesses separately and combining those estimates to arrive at an overall valuation.

According to Chadha, the market had not adequately reflected the value of Reliance’s different business segments in its share price. He described the stock as undervalued for a considerable period, even though it has businesses spanning energy, telecommunications and retail.

He explained that around the time the proposed Jio Platforms initial public offering (IPO) came into focus, Reliance Industries’ SOTP valuation was estimated at approximately $300 billion. Even after applying a holding-company discount of 20-30%, he believed the stock remained undervalued.

Based on an adjusted valuation of around $200 billion, Chadha estimated that Reliance shares were trading at a discount of approximately 20-25%. He said the valuation gap suggested that investors had not yet fully accounted for the underlying worth of the company’s businesses.

His assessment also reflects the importance of the Jio Platforms listing in the broader investment narrative around Reliance Industries. A potential listing could provide investors with another way to assess the value of the telecommunications and digital business within the conglomerate.

Strong O2C Earnings Helped Drive the Recent Rally

Reliance Industries’ second-quarter results for FY27, announced on Friday, were an important factor behind the recent share-price rally, according to Chadha. He said the company’s September-quarter earnings were stronger than expected, particularly in the oil-to-chemicals business.

The O2C segment contributed a substantial portion of the company’s reported quarterly earnings. Chadha noted that Reliance generated EBITDA of approximately Rs 55,000-56,000 crore during the quarter, with around Rs 25,000-26,000 crore coming from the O2C business alone.

He said the segment performed particularly well compared with expectations. The contribution highlighted the continuing importance of Reliance’s refining and petrochemicals operations to its overall financial performance.

The O2C business processes crude oil and other feedstocks into products such as fuels and petrochemicals. Its performance can be influenced by crude prices, refining margins, product demand, feedstock costs and global supply conditions. Changes in these factors can affect the profitability of large integrated energy companies.

For Reliance, refining margins remain an important variable because the company operates substantial refining capacity and serves markets affected by international fuel demand and supply conditions.

Global Supply Disruptions Could Support Refining Margins

Chadha expects refining margins to remain supportive in the near term, citing supply disruptions and low diesel inventory levels in important international markets. He specifically referred to inventory conditions in Europe and the United States as factors that could support refining margins.

Diesel inventories and the availability of refined petroleum products can influence the difference between crude oil prices and the prices of finished fuels. These differences, commonly reflected in refining cracks, help determine the profitability of refining operations.

When inventories are low and supply is disrupted, prices of refined products may receive support. This can improve the operating environment for refiners, although the actual impact depends on crude prices, product demand, operating costs and the duration of supply disruptions.

Chadha said Reliance’s refining capabilities could become particularly valuable amid geopolitical uncertainty and disruptions to global energy supplies. In his view, the company’s ability to process crude oil and produce refined fuels could be an important part of its investment appeal during periods of international market volatility.

He also highlighted the supportive near-term outlook for diesel-related refining margins. However, refining conditions remain sensitive to changes in global energy markets, meaning that the outlook could shift if supply and demand conditions change.

Jio Performance and Potential IPO Support Investor Sentiment

Alongside the O2C business, Reliance’s telecommunications operations have contributed to positive investor sentiment. Chadha identified Jio’s steady performance as another factor supporting the company’s valuation and recent share-price movement.

Reliance’s telecommunications business has become an important part of the group’s overall operations. Its performance is closely watched by investors because it represents a major consumer-facing business with a large digital and connectivity presence.

The potential listing of Jio Platforms has also attracted attention. Chadha identified the development as one of the factors that could help investors recognise the value of Reliance’s individual businesses more clearly.

A separate listing could give the market a more direct valuation reference for Jio Platforms, although the timing, structure and final terms of any public offering would remain important considerations. For Reliance shareholders, the potential listing is part of the broader discussion about how the conglomerate’s different businesses are valued.

Chadha’s comments suggest that the combination of steady telecommunications performance and the possibility of a Jio Platforms listing has helped strengthen the investment narrative around Reliance Industries.

Retail Business Could Become the Next Major Growth Trigger

While O2C and Jio have supported the recent rally, Chadha believes the retail business could provide another important trigger if its operating performance improves in the coming quarters.

He described the retail segment as relatively soft at present, partly because of a mismatch in the timing of the festive season. Such calendar differences can affect comparisons between reporting periods, particularly for businesses that depend on consumer spending and seasonal shopping activity.

Chadha said a stronger performance from Reliance Retail could reinforce the positive momentum already visible in other parts of the company. He referred to activity across the quick-commerce and fast-moving consumer goods (FMCG) sectors while discussing the potential for improved retail numbers.

His comments indicate that investors will be watching the retail segment for signs of stronger business activity. A recovery in sales and operating performance could help strengthen the overall earnings profile of Reliance Industries.

Retail is an important part of Reliance’s diversified business portfolio. Its performance can be influenced by consumer demand, product mix, store operations, festive-season spending and competition from both traditional retailers and digital commerce platforms.

For investors assessing Reliance’s valuation, the retail business therefore remains an important segment to monitor alongside refining and telecommunications. Stronger retail results could provide additional support to the company’s earnings outlook, although the scale of any impact will depend on the actual financial performance reported.

Chadha Says Reliance Remains Reasonably Valued Despite Recent Gains

Reliance Industries’ sharp rise has brought renewed attention to its valuation. However, Chadha believes the stock remains reasonably valued from the perspective of large-cap investments.

He said that even after the recent rally, the shares continued to offer a reasonable valuation when considered against the company’s business portfolio and estimated SOTP value.

The argument rests on the combined contribution of Reliance’s major businesses. The O2C segment provides exposure to refining and petrochemicals, Jio represents its telecommunications and digital operations, while retail offers exposure to consumer spending and organised commerce.

Investors evaluating the stock will also need to consider the risks associated with each business. Refining margins can change with global energy conditions, telecommunications performance depends on operating and competitive factors, and retail growth remains sensitive to consumer demand.

The potential Jio Platforms listing is another factor that could influence how the market assesses the group’s overall valuation. Until further details become available, its impact on the share price will remain linked to investor expectations.

What Investors May Watch Next

Chadha’s assessment highlights several developments that could influence Reliance Industries shares in the coming quarters. The company’s latest O2C performance has provided support to sentiment, while steady Jio numbers and the potential Jio Platforms listing remain important parts of the investment outlook.

The retail business is another segment investors may monitor closely. A recovery in its performance following the festive-season timing mismatch could add another source of support to the company’s financial results.

At the same time, the outlook for refining margins will depend on international fuel inventories, supply disruptions and geopolitical developments. Any change in these conditions could affect the contribution of the O2C business.

For now, Chadha’s central argument is that Reliance Industries continues to trade below his assessment of its underlying business value. While the stock has already recorded a significant rally, he believes its valuation remains reasonable and that stronger retail performance could become the next major catalyst for investor interest.