Morgan Stanley Raises Target Price To Rs. 2247; Sees RIL's Investment At $60 Bn In Next 10 Years

From 52-week low price struck on March 23 of Rs. 867.43, the stock of Reliance Industries has zoomed 140 percent (considering the closing price of Rs. 2087.25 per share on the NSE on September 1, 2020) and there is seen further upside in the counter by some of the brokerages. In its latest report, Morgan Stanley sees Mukesh Ambani led oil to telecom conglomerate to make an investment of up to $60 billion over the next decade.

And the distribution of the amount into the different businesses is expected to be as though:

1. New energy (Renewable, batteries, other fuels): US$13-15 bn
2. Digital: US$12-15 bn
3. Retail: US$ 12-14 bn
4. Chemicals: US$ 8.5-10.5 bn
5. Plastic recycling: US$1.5-0.5bn

"We estimate this vision will need $50-60 billion in growth capex if executed on a standalone basis-i.e. similar to the size of investments it has made in the last decade," the brokerage report said. Nonetheless, aided by more cash flows and strategic investors, the next investment cycle is seen to be less taxing both on the company's balance sheet and earnings.

The brokerage firm has drawn cues from the speeches of RIL's Chairman Mukesh Ambani for determining the next growth driver and drew attention to key markets that can be catered to in the country. The results of these efforts will be the key for stock's outperformance as the current stock multiple captures some of the near-term upsides, it added.

In its AGM held in July 2020, RIL's chairman underscored next growth drivers for the company in areas including new energy, new materials, e-commerce and 5G. Also the pledge to attain carbon net zero by the year 2035 signifies immense possibilities inrenewables, batteries, and downstream chemical integration as well as plastic recycling, said Morgan Stanley in its report.
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"RIL has shown the ability to monetize the growth prospects of its digital assets and de-lever its balance sheet, but simultaneously has highlighted plans to expand its reach in new energy and chemicals, and has rolled out its e-commerce platform. As RIL embarks on these growth initiatives, capital allocation will take center stage and likely drive stock performance. As the market starts appreciating its plans for new energy, its path to net carbon zero, integration into chemicals, and execution on last-mile consumer reach in retail, we believe a steady re-rating similar to that of global peers should be in the works," the brokerage report stated.

RIL's ability to tap into global partnerships to address untapped TAM should reduce investor skepticism about execution while keeping net debt in check, added the brokerage.

MS has further raised 12-month target price for the RIL counter from Rs. 1810 to Rs.2247, which is an upside of another 8% from current price level, while maintaining 'overweight' call. Also, the company has increased EPS estimates for FY22 and FY23 by 8% and 12%, respectively.

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