Reliance Industries Ltd. rose the most in five weeks after Morgan Stanley raised target price, citing that a fourth investment cycle spanning across different business verticals would double the earnings of the oil-to-telecom conglomerate.
“We think this (investment) could help RIL double its earnings, and more importantly increase investor confidence on the $70-billion value creation pivot in the energy business and we move it to our top pick,” Morgan Stanley said in its investor note.
The investment bank reiterated ‘overweight/in-line’ and raised target price from Rs 3,015 to Rs 3,085, an implied return of 21.91%.
Reliance’s investments in new energy and retail expansion will drive market share from the unorganised sector, while repurposing of existing energy business gives the conglomerate “a long runway to deliver earnings growth consistently even beyond the next three years”, the note said.
The key factor here, it said, has been Reliance’s market share gains, complete integration and the ability to execute above investor expectations every time it has reimagined its business.
The investment, however, is less aggressive when compared to the size of Ebitda, it said. The investment cycle also brings down the cyclicality in Reliance’s cash flows, which should lower the cost of equity, according to Morgan Stanley.
This could start inflecting Reliance’s price-to-book value multiple closer to market multiples, which are at 50% discount.
Separately, Kotak Securities said Reliance’s own FMCG sales can add a margin layer to its overall Jiomart business. The conglomerate, in its annual general meeting held Aug. 29, had announced plans to foray into the FMCG space.
The brokerage kept a ‘buy’ call with a fair value of Rs 2,980.
“We think this move is logical given Reliance Retail already has a private label portfolio of food (pulses, packaged foods and beverages) and non-food FMCG (home, hygiene and personal care) brands that it has developed over a course of time to serve its widespread own store footprint of 1,713 stores,” it said.
Shares of Reliance Industries ended at Rs 2,570.25 after having risen by over 2%, the most in five weeks, on the BSE. The rise comes after a 4% fall in the preceding two sessions.
Of the 39 analysts tracking the company, 31 maintained a ‘buy’, five suggest a ‘hold’ and three recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 12.1%.