Reliance’s Discounted Cash Flow
Particulars RANGE SELECTED
WACC/Discount 13.2% - 15.7% 14.40%
Long-term Growth Rate 2.0%- 4.0% 3.00%
Fair price 525.07 - 826 646.25
Upside -0.237 -49.10%
The finance projections for Reliance Industry based on assumptions about the revenue growth,
cost structure, and profitability trends for next 10 years. The revenue projections are using annual
growth rate, from 3% to 10%, it reflects expected market expansion and business performance
improvements. The revenue is calculated using a year-on-year percentage increase which applies
to previous year revenue base, it increase from ₹9.14 trillion in 2024 to ₹15.81 trillion by 2034.
The COGS is shows as a percentage of revenue, slowly decrease from 69% in 2024 to 62% by
2034, it shows improvement in operational efficiency and cost management.
This reduced percentage shows better economies of scale, cost optimization strategies, and
improved margins. Selling and Administrative expenses have constant of 13% of revenue, it
shows a predictable cost structure across the projected years.
The net interest and other expenses remain 7% revenue, it shows stable debt financing structure
without fluctuations in interest obligations Tax expenses were computed based on corporate tax
ranging between 22% and 25%, which apply to pretax profits, it ensures following with
regulatory taxation frameworks.
The net profit is derived after deducting COGS, SG&A, interest, and tax expenses from revenue,
it shows an increase profit trend. The net profit margin improves from 9% in 2024 to 14% by
2034, it shows enhancement in profitability and financial efficiency due to cost and control
measure and revenue growth. This aligns with company’s objective of maximizing shareholder
value and achieving a sustainable growth.
The WACC is done within the range of 13.2% - 15.7%, with a rate of 14.4%, which use as a
discount rate for valuation models such as Discounted Cash Flow. Based on WACC, the fair
value of Reliance stock is estimated ₹778.85 per share, with an upside potential of -38.6%, it
shows that the stock might be overvalued in the current market relate to its value.
The financial projections show Reliance Industry strong revenue growth, declining cost ratios,
and improving profitability margins over the next 10 Years. The constant cost reduction in
COGS and SG&A expenses shows that the company is focusing on operational efficiency. The
net profit margin’s increase from 9% to 14% shows strong earnings growth, making Reliance
more financially stable over time.
But the valuation analysis suggests that Reliance’s stock is currently above its fair value, with the
estimated of downside of 38.6%, which shows that investors might pay a premium for its shares.
The chosen WACC of 14.4% is tough for investment decisions, as it represents the minimum
required return the company need to generate to satisfy both the debt and equity holders. These
projections show a positive long term for the company but also indicate the need for assessment
of valuation metrics before making any investment decisions
WACC
Select
Particulars Range ed
14.5% -
Cost of equity 17.5% 16%
20.8% - 21.80
Tax rate 22.8% %
Cost of debt 8.6% - 8.6% 8.60%
13.2% - 14.40
WACC 15.7% % In the CAPM model, the
expected market return of 9.3% is calculated in accordance with market predictions by adding
the 6.9% bond rate to the 9.3% equity market risk premium. The free risk rate of 6.9% is
obtained from the long-term bond yield and the market risk premium (9.3%-6.9%) is calculated
to be 8.3%-9.3% which is in accordance with global standards. Reliance’s beta captures the
firm’s historical volatility at 1.04, which is over the prior five years. Because the company
maintains a stable debt structure, the company’s levered beta sits at 1.04, which implies that the
stock price moves by 1.04% for every 1% shift in the market index.
Reliance’s current cost of borrowing is reflected in 8.6% interest rate on debt. The company’s
interest expense is assumed to be in the given corporate tax bracket of 21.8%, therefore the after-
tax cost becomes: The short- and long-term capital structure of the company post M&A stands at
20% debt, 80% equity which corresponds to a debt-to-equity ratio of 0.2. The expected return on
capital sought by investors is met with WACC at 14.4% which is derived through a weighted
amalgamation of cost of equity, set at 16%, and after-tax cost of debt, sitting at 6.73%.
Beta estimates the volatility of a company’s share price in relation to the price movements in the
market. For this analysis, we calculated the beta for Reliance Industries for the last five years
which is 1.13. In his/her/its acquisition integration plans, Reliance is expected to increase
financial leverage, so it equity beta was unlevered using the firm's existing debt-equity ratio of
0.2. This produced an asset beta of 0.97. Then it was altered to reflect the new capital structure,
which is comprised of a higher debt-equity ratio post-acquisition, this caused the revered beta to
range from 0.88 to 1.06. To account for industry and market risk mark the final adjusted beta was
set at 0.92 and 1.04. For all estimates suggesting higher market volatility, reliable stock would be
on an uptrend, whereby a rise in the market index of 1% will push the company share price up by
1.04%. This indicates a very risky situation due to the high exposure from the pre-acquisition
beta.
Liquidity and Debt serving analysis
Ratio analysis Reliance Industries Industry average
Liquidity
Current ratio 1.18X 8.61X
Quick ratio 0.74 X 8.21X
Solvency ratio
EBITDA Int. cov 7.71X 5.64X
Debt/Equity 0.41X 0.11X
On comparing Reliance Industries' financial ratios with industry averages in India, a few
conclusions can be made about its liquidity and solvency status. Reliance is as low as 1.18× in
current ratio and 0.74× in quick ratio, much below industry averages of 8.61× and 8.21×
respectively. This implies that Reliance has fewer current assets in relation to current liabilities
than its competitors and fewer of these assets are readily liquid (all except inventory). Although
its current ratio also shows it has enough to pay for short-term obligations, the considerably
lower quick ratio could mean drawing on inventory or other less liquid assets to fund operations.
Reliance's solvency is excellent. The company's interest coverage ratio using EBITDA is 7.71
times - well above the industry average of 5.64 times. Reliance's earnings can comfortably cover
the pay-out of interest, which shows that the company has good capacity to service debt. On the
contrary, Reliance's debt to equity ratio is 0.41 times, which is higher than the industry average
of 0.11 times which indicated that the company has generally higher leverage or is more reliant
on debt than the industry competitors. While that means higher financial risk, it may also be a
strategic choice to stimulate growth and increase profits.
Reliance Industries has overall good solvency given its strong earnings, interest coverage, and
above-average reliance on leverage. The company's liquidity, while sufficient, is less
conservative than its industry peers, likely through the strategic use of short-term funding or
based on the capital-intensive nature of its business.
Mergers And Acquisition
Reliance has undergone multiple acquisitions over the last 5 years which includes companies like
Just dial: Which is leading search engine platform in India which enhances Reliance’s
digital services and e-commerce growth.
Netmeds: A major online pharmacy which is fast growing in health care sector and in e-
pharmacy space
Urban ladder: It appears to be in home décor and a furniture retailer, which allows
reliance retail to step into online furniture and lifestyle market.
Karkinos Healthcare: It’s a tech driven oncology platform, reflects reliance interest in
health tech and in preventive care.
Navi Mumbai industrial area: This was a strategic investment to increase industrial
infrastructure and supporting its supply chain and warehousing in Maharashtra.
Most importantly the Viacom 18 and Disney star merger, which combines Jio cinema and
Disney+ hotstar, combining them became one of the largest media and entertainment
deals in India. This deal helped reliance to be at the forefront of India’s digital streaming
and broad cast entertainment market, brought over 100 TV channels and two major OTT
platforms under one brand.
Merger & Purchase Price Net Assets Estimated Goodwill
Acquisition (₹ Cr) (₹ Cr) (₹ Cr)
Just Dial 5710 4861 849
Netmeds 620 400 220
Urban Ladder 182 110 72
Karkinos Healthcare 100 60 40
Navi Mumbai Industrial
Area 1628 1100 528
Viacom18–Disney Star 70000 50000 20000
*Note: Figures have been rounded off for calculation purpose
The above is the goodwill calculation for reliance industries recent merger and acquisition
activities goodwill calculated using the standard accounting formula, Goodwill = Purchase price
– Net asset Required, these investments contribute to value creation through integration, cross
section growth and through synergy.
Reliance acquisitions have significantly contributed to their performance over the past five years,
as a fact their revenue in Fiscal year in 2020 is INR 5,99,546 crore and as if in 2024 their
revenue is INR 10,00,122 Crore where we can see there is a huge growth of 66.8% and as far as
net profit (equity holders) considered it was INR 39,354 crores and in 2024 the it is INR 69,621
crores where it’s growth rate is up to 77% and their retail stores court grew up to 18,836 in 2024.
EPS analysis revealed that eps has been increased by 64%, affirming that acquisition- driven
earnings growth more than the offset dilution.
1. Reliance Industries Insights
2. About Reliance
Reliance Industries Limited (RIL) is India’s one of the largest private sectors, which is
headquartered in Mumbai, Maharashtra. Dhirubhai Ambani Founded Reliance in 1966. The
company has grown into a global leader in various industries, which includes petrochemicals,
refining, oil & gas exploration, telecommunications, retail, and digital services. Under Mukesh
Ambani, RIL has continuously extend its operations and diversified into emerging sectors, solid
its position as a key player in India’s economic growth.
RIL operates the world’s largest oil refining complex in Jamnagar, Gujarat, with a refining
capacity of 1.24 million barrels per day. The company is also an inspiration in the digital and
telecom space, having revolved India’s mobile industry through Jio Platforms, which introduced
affordable 4G services and data-driven solutions to millions of Indians. In retail, Reliance Retail
is the largest organized retail player in India, which have many categories like fashion,
electronics, groceries, and e-commerce.
3. Reliance’s stock price data and share price performance
References
1. https://timesofindia.indiatimes.com/business/india-business/reliance-spends-13-billion-
on-acquisitions-in-5-years-focus-on-energy-and-technology/articleshow/116832239.cms
2. https://www.ril.com/ar2022-23/manufactured-capital.html
3. https://www.ril.com/ar2022-23/manufactured-capital.html
4. https://www.ril.com/ar2023-24/pdf/RIL_IAR_2024.pdf
5. https://economictimes.indiatimes.com/reliance-industries-ltd/quotecompare/companyid-
13215.cms
6. https://www.capitaliq.com/CIQDotNet/Comps/Comparables.aspx?
compsId=717791820&objectId=1202762996&compsType=1&tempId=1390788&tab=90
65666&statekey=61cf7be7b6bf4e1cac144a57f7c223e4
7. https://www.gurufocus.com/term/dividend-growth-5y/RLNIY
8. https://www.moneycontrol.com/financials/relianceindustries/ratiosVI/ri
