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Morgan Stanley sees $50 billion addition in Reliance Industries m-cap in 2022; here's why

Morgan Stanley sees $50 billion addition in Reliance Industries m-cap in 2022; here's why

While retaining its bullish view on Reliance Industries (RIL), global brokerage firm Morgan Stanley believes that the energy-to-telecom behemoth is on a path toward an over $20 billion EBITDA run rate inflection with five-pronged support.

Of late, Reliance Industries became the first domestic company to cross the $250 billion mark in market capitalisation on April 28. Of late, Reliance Industries became the first domestic company to cross the $250 billion mark in market capitalisation on April 28.

While retaining its bullish view on Reliance Industries (RIL), global brokerage firm Morgan Stanley believes that the energy-to-telecom behemoth is on a path toward an over $20 billion EBITDA run rate inflection with five-pronged support.

Firstly, it believes that refinery margins could nearly double and be sustained at high levels for the next half-decade, with global fuel markets seeing sustained lower supply due to a lack of investments. Secondly, Morgan Stanley also sees telecom ARPUs (average revenue per user) rising, quality of subscribers improving and churn falling.

“RIL lost 10.8 million subscribers in Q4FY22 against 8.4 million in Q3FY22, with the active subscriber base rising to 94 per cent in February 2022 from 85 per cent in Q3FY22. Gross subscriber additions were at 35.3 million, so a reduction in churn should drive net additions to be positive in FY23, as large part of sim consolidation challenges are waning,” Morgan Stanley said.

Thirdly, the overseas financial firm added that the global gas market could tighten further as producer discipline remains and rising domestic gas production and an uplift in ASPs in Q3FY22 inflects EBITDA.

Morgan Stanley explained that RIL is producing over 18 mmscmd of gas from its KG basin, which it expects to rise to 30 mmscmd peak production over the next two years, with increases starting in Jan 2023. Rising production, along with a tailwind from elevated global gas prices, could increase RIL’s upstream profitability multi-fold over the coming years.

Fourthly, rising traction on digital commerce with 193 million subscribers and a consistent 20 per cent revenue contribution should expand margins. Lastly, it added that the superior petrochemical spreads in olefin and PVC as global cost curves are uplifted, and supply should add to unwinding.

“Investors appear highly skeptical, especially on the sustainability of the energy upcycle and potential demand destruction, but we see enough buffers on-demand/global inventories along with supply discipline to drive multi-year outperformance. The new energy business, along with the five-pronged tailwind, could add $50 billion in market cap in 2022,” Morgan Stanley said.

Of late, Reliance Industries became the first domestic company to cross the $250 billion mark in market capitalisation on April 28.

Its views came after Reliance Industries on Friday reported a consolidated profit after tax (PAT) at Rs 16,203 crore, up 22.5 per cent in the quarter ended March 31, 2022 following strong performance across its energy, telecom and retail verticals. It had posted a net profit of Rs 13,227 crore in the year-ago period.

Morgan Stanley has set a target price of Rs 3,253 for RIL, indicating an upside of over 25 per cent from the current market price.

“RIL reported earnings slightly higher than our and consensus estimates. We have seen 5 per cent consensus earnings upgrades for RIL YTD, and expect another further 10-12 per cent,” Morgan Stanley said in a report.