India’s largest company, Reliance, faces the biggest challenge at home
Reliance Retail’s revenue grew just 8.1% year-on-year and its EBITDA grew just 2% in the December quarter.
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India’s largest business group, Reliance Industries, is struggling with geopolitical headwinds in its oil refining and reportedly one of its new energy ventures. But these are not the biggest concerns of the conglomerate, which extends from oil to telecommunications.
The slowdown in the retail business, the group’s third-largest vertical, has led analysts to cut earnings estimates and reduce target price on the stock, although they maintained a buy rating on Reliance shares.
Reliance Retail’s revenue grew just 8.1% annually and its earnings before interest, taxes, depreciation and amortization, or EBITDA, rose just 2% in the last quarter, raising doubts about the company’s ability to deliver high growth.
“We are confident of delivering 20%+ plus CAGR” [compound annual growth rate] Isha Ambani, who runs the retail business, told shareholders at the company’s annual meeting last year that there would be a huge increase in retail revenues over the next three years.
Macquarie Capital delisted Reliance from Asia Marquee. Reliance Retail is a “significant swing factor” in the group’s sum-of-parts valuation due to slowdown in growth momentum, the global brokerage said in a report on Monday.
Citi lowered its target price to 1,815 rupees ($19.9) per share from 1,860 rupees, while UBS cut it to 1,790 rupees from 1,820 rupees. UBS expected the retail sector to grow 10% annually in the December quarter.
Just ahead of the festive season, in September, the Indian government reduced goods and services tax rates in a bid to encourage domestic consumption. However, the recovery in demand has been uneven across segments, with gold and car sales rising in the December quarter; fashion and consumer staples reported softer growth.
“We see no near-term catalyst for increased consumer demand and enter 2026 with gloomy expectations. While we hope for a delayed effect of stimulus measures, we expect only a gradual recovery at best, not a dramatic one,” Bernstein said in a note earlier this week. he said.
Reliance Retail peers like Avenue Supermarkets and Tata Group’s Trent also reported slower growth in the December quarter. Reliance said last year’s festive season demand was split between the second and third quarters, resulting in softer growth figures.
Reliance Retail also argued that its December quarter results were not comparable on a year-on-year basis due to the demerger of its consumer staples business and now being directly subsidized by Reliance Industries.
Gross revenue for the consumer staples business was 50.65 billion rupees ($556.8 million) in the December quarter, or roughly 5% of Reliance Retail’s revenue of 976 billion rupees.
Brokers view the December quarter results not as a jump in the company’s growth, but rather as a continued downward trend. Citi on Monday cut Reliance’s consolidated EBITDA estimates for its fiscal year 2026 to 2028 by 1%-2%, citing “moderation” in its retail business.
Shares of Reliance Industries have tumbled nearly 5% since its earnings release, even as the company’s main oil refining business appears to be handling well in a challenging business environment and its major telecommunications business is reporting steady growth.
headwinds
Pankaj Srivastava, Rystad Energy’s senior vice president of commodity markets-oil, said the company was one of the largest consumers of Russian crude, accounting for 40-45% of the crude oil mix at its peak.
EBITDA from oil-to-chemicals activity, which includes refining and petrochemical products, increased by 15% on an annual basis and “cracks appeared in the refining” [margins] “This strength more than offset Russia’s lower crude purchases, higher freight rates and petchem weakness,” Goldman Sachs said in a report Monday.
Geopolitical concerns seem to have also weighed on the company’s new energy business. A report from Bloomberg last week claimed that the company’s plans to build a battery storage facility with an annual capacity of 40 gigawatts have been implemented. to hold. The report claimed that the Indian company could not procure technology from China due to restrictions imposed by Beijing on technology transfer.
During the earnings call, the company denied any delays to the project. Karan Suri, senior vice president of new energy business, said the company is “on pace to build out our 40 gigawatt battery storage facility and that the rollout will happen in the next few quarters.”
Reliance’s telecommunications business, unaffected by domestic consumption concerns or geopolitical tensions, continued to deliver a stable performance, in line with the expectations of brokers such as UBS and Citi.
The business, which plans to enter the list this year, reported a 12.7% increase in revenue and a 16.4% increase in EBITDA on an annual basis. It added 8.9 million customers this quarter, bringing its total subscriber base to 515 million.
