Valuation of Reliance Inc: Overpaying by 26% or Underestimated Growth Potential?

Reliance, Inc. (NYSE:RS) has a fair value of $234 based on 2-stage free cash flow to equity. The current share price of $295 suggests the company is potentially 26% overvalued, and the $326 analyst price target is 39% more than the estimated fair value.

Shares of Reliance Inc. (NYSE: RS) experienced a significant downturn on Monday, July 25, 2025, following the Central Bureau of Investigation's (CBI) filing of a criminal case against the company's promoter, Anil Ambani. The CBI action, which included searches at Ambani's residence and premises linked to Reliance Communications, was prompted by a fraud complaint from the State Bank of India (SBI).

The CBI probe, based on SBI's classification of the entities as fraudulent on June 13, 2025, has resulted in a 5% decline in Reliance Power and Reliance Infrastructure shares, while Reliance Communications fell by 5.5% in the intraday session [1]. The SBI had previously classified Anil Ambani and his group as 'fraud' on November 10, 2020, and filed a complaint with the CBI on January 5, 2021.

The current market sentiment surrounding Reliance Inc. is further complicated by the valuation discrepancies suggested by analysts. While the company's shares are currently trading at $295, a 26% premium over the estimated fair value of $234 based on 2-stage free cash flow to equity, the analyst price target stands at $326, a 39% increase from the estimated fair value [2].

Amidst the ongoing regulatory probes and valuation uncertainties, investors are closely monitoring the developments. Anil Ambani has strongly denied all allegations and charges, stating that the SBI has selectively targeted him and that the allegations are not rooted in fact. The company's spokesperson emphasized that the SBI has already withdrawn proceedings against five other Non-Executive Directors.

Reliance Inc. is currently being managed under the supervision of a committee of creditors, led by SBI, and overseen by a resolution professional. The resolution plan was approved by the Committee of Creditors and filed with the National Company Law Tribunal (NCLT), Mumbai, on March 6, 2020. SBI has also initiated a Personal Insolvency Resolution Process under the Insolvency and Bankruptcy Code (IBC) against Anil D Ambani, which is being heard by NCLT, Mumbai.

Investors should closely follow the developments in this case, as it may significantly impact Reliance Inc.'s financial performance and stock valuation.

References:
[1] https://www.business-standard.com/markets/news/reliance-comm-power-infra-hit-5-pc-lower-circuit-as-cbi-books-anil-ambani-125082500187_1.html
[2] [Writing Topic]