Reliance Industries can add up to $100 bn to market cap: Morgan Stanley

Reliance Industries Ltd can add up to $100 billion to its market capitalisation in its fourth monetisation cycle this century as new cash flow streams emerge and valuation multiples catch up, Morgan Stanley said in a report.

The oil-to-telecom conglomerate has seen monetisation cycles deliver 2-3x value creation for shareholders in the past nearly three decades, with each decade seeing $60 billion+ in market cap creation.

RIL is in its fourth monetisation cycle this century.

"Monetisation 4.0 is different; it is supported by the business upcycle, domestic demand, and lower competition," the brokerage said. "RIL's fourth monetisation cycle (since 1997) should add up to $100 billion to $60 billion increase in market cap year-to-date."

Key to this has been RIL's market share gains, complete integration, and most importantly, ability to execute above investor expectations each time the company has re-imagined its business.

This monetisation follows the $60 billion in investments in 2021-23, which was the shortest investment cycle since the 1990s for RIL.

Investments made in new energy, retail expansion to take market share from the unorganised sector, and repurposing existing energy businesses provide a long runway to deliver earnings growth consistently even beyond the next three years should ROCE be sustained above 10 per cent.
 

Morgan Stanley expected the company's earnings to grow at 12 per cent CAGR over FY24-26 with tailwinds in earnings from all verticals.

"We see RIL's ROE being higher than the cost of capital going forward as it is transitioning to a more profitable, sustainable, and less cyclical growth model due to changes in business as well as capital structure," it said.

It raised its multiples (in SOTP) by 0.5-1.0x to reflect this monetisation as RIL catches up with domestic and global peers that have seen the business upcycle and monetisation re-rate multiples by 30 per cent in the past year.

On what has changed and what is priced in, the brokerage said, "We reflect recent telecom tariff hikes, oil prices, and refining margins, and raise our EPS estimates fractionally for 2025, by 7 per cent for 2026, and by 8 per cent for 2027."

"RIL has been a 'show me' story for the past decade and has seen significant market cap inflection once new revenue streams such as new energy, higher telecom tariffs/chemical margins have been delivered," it added.