Goldman Sachs (GS) has raised its target price for Reliance Industries (RIL) to Rs 3,400, citing peaking capital expenditure in its established businesses and favorable risk-reward dynamics. In a base-case scenario, this represents a potential upside of 14% over Wednesday's closing price.
GS believes that RIL's consolidated returns are at an inflection point, with cash return on cash invested (CROCI) expected to expand significantly by FY27. This is attributed to a decline in capex in telecom and retail, offset by higher new energy investments.
The brokerage expects RIL's free cash flow to turn positive in FY25, driven by a 20% year-on-year expansion in EBITDA. This growth is anticipated to be fueled by the energy business, retail segment, and telecom EBITDA, supported by tariff hikes.
GS notes that RIL's shares tend to perform well when returns are expanding and when value is unlocked through stake sales in newer businesses. While these factors have been absent in recent years, the brokerage anticipates "rising returns ahead that could compound with potential value unlocking through possible listings of its consumer businesses.