Morgan Stanley has chosen the Reliance industry as its top pick, says its current investment is less aggressive
Reliance Industries has been chosen by brokerage behemoth Morgan Stanley as its top choice in a wager on the company’s fourth investment cycle this century. In addition, it raised the stock’s price target from Rs. 3,015.00 to Rs. 3,085.00.
At 10:45 a.m. on the BSE, Reliance Industries’ stock is up 1.1 percent to Rs 2,558.90.
Morgan Stanley claims that during the past two decades, investment cycles have unwound, contributing between two and three times as much value to shareholders and $60 billion to market capitalization per decade.
The corporation predicts that the fourth investment cycle for RIL this century will involve less aggressive investments and lower share values. Due to reduced competition, telecom earnings are predictable, whereas the retail industry is experiencing stable growth. The company believes that integration with the chemical industry and access to less expensive Middle Eastern gas feedstock will help to minimize the cyclical nature of returns.
The current investment cycle will have the lowest balance sheet leverage ratios ever, predicts Morgan Stanley. This will be aided by increased refining margins, gas output, rising telecom costs, food industry growth, and a quicker monetization of new energy. In contrast to the previous investment cycle, RIL’s investment cycles are “coinciding with upcycles in its core activities,” the company claimed.
Earnings per share (EPS) CAGR (compound annual growth rate) for FY23–24E is predicted to be 18%, and through 2025, operating cash flow from refining, telecom, and eventually, chemicals would total $16 billion on average.
Morgan Stanley claims that RIL is working with technology owners to accelerate the cash conversion cycle and that its upcoming development zones will experience less heated competition. The cycle itself has shrunk by half to 3–4 years from earlier cycles. RIL previously prioritized organic growth as a strategy for growth, but it has since spent almost $4 billion on inorganic acquisitions and gained experience in a variety of industries.
The company has promised to reveal details about Reliance Jio and Reliance Retail’s possible IPOs by the end of the next year. According to Morgan Stanley, several ratings may be feasible because these IPOs would unlock value. It predicts that a holding company discount will eventually appear. According to the research, any challenges should be lessened by the robustness of the energy industry and the potential for financial gain from new energy programs.
