Reliance Industries market cap could soar by $100 billion: Morgan Stanley
Reliance Industries market cap could soar by $100 billion: Morgan Stanley
Reliance Industries Ltd (RIL) is expected to see its market capitalisation (m-cap) rise by up to $100 billion, according to Morgan Stanley.
The expected boost is seen as part of what the brokerage calls RIL's fourth monetisation cycle of this century.
Morgan Stanley believes that this growth will be driven by new business cycles, new cash flow streams, and increased valuation multiples.
The cash flows from this latest monetisation are being invested in new energy and new chemicals. Morgan Stanley said that this monetisation cycle is different from previous ones because it is supported by a business upcycle, strong domestic demand, and lower competition.
Morgan Stanley highlighted that RIL's past monetisation cycles have created 2-3 times value for shareholders over the last three decades.
Each decade has seen over $60 billion added to RIL's m-cap. Key factors include RIL's market share gains, complete integration, and its ability to exceed investor expectations each time.
"This monetisation follows the $60 billion in investments made between 2021 and 2023, which was the shortest investment cycle for RIL since the 1990s," said Morgan Stanley. "Investments in new energy, retail expansion, and repurposing of existing energy businesses are expected to drive consistent earnings growth beyond the next three years if the return on capital employed (ROCE) remains above 10%."
The brokerage forecasts a 12% annual growth in earnings per share (EPS) from FY24 to FY27, with multiple growth triggers across various sectors.
"We have factored in recent telecom tariff hikes, oil prices, and refining margins, and have slightly raised our EPS estimates for 2025 by 7%, and for 2026 and 2027 by 8%. Our price target for RIL has increased to Rs 3,540 from Rs 3,046. RIL has been a 'show me' story for the past decade and has seen significant m-cap growth with the introduction of new revenue streams like new energy and higher telecom tariffs," Morgan Stanley added.
The valuation multiples for RIL have varied across the past three investment cycles. Morgan Stanley believes that RIL's return on equity (ROE) is likely to be higher than its cost of capital in the future.
This is because RIL is moving towards a more profitable, sustainable, and less cyclical growth model due to changes in its business and capital structure.
"We have increased our valuation multiples by 0.5-1 times to reflect this monetisation cycle. RIL is catching up with domestic and global peers that have seen a 30% re-rating in their business upcycle and monetisation multiples over the past year," said Morgan Stanley.
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