Morgan Stanley sees re-rating for RIL; raises target, retains 'Overweight'

Global brokerage Morgan Stanley has hiked its target price on Reliance Industries (RIL) to ₹1,847 per share from ₹1,701 earlier, maintaining an ‘Overweight’ rating. The brokerage believes RIL is trading as if its existing businesses are only at mid-cycle earnings, but the market is undervaluing its next leg of monetisation and capital redeployment into new growth engines.  

 

“RIL is pricing in mid-cycle earnings for current verticals, yet the monetisation cycle and capital redeployment into new growth engines remain underappreciated, as reflected in 60 per cent discount to peer multiples weighted by net asset value (NAV) of each division,” Morgan Stanley said.

 

 

The report identifies multiple structural themes across RIL’s portfolio—spanning energy, chemicals, retail and telecom—that together add up to over $50 billion in NAV.

RIL poised for re-rating

Morgan Stanley reckons that RIL’s fourth monetisation cycle in 30 years – with energy, consumer, and telecom investments is turning free cash flow (FCF) positive for the first time, which could be a key trigger for a “re-rating”.

 

The report highlighted that RIL outperformed the Sensex by 35 percentage points in the last two monetisation cycles, 2017-2019 and 2020-2021, and now it is redeploying FCF on new growth frontiers – artificial intelligence (AI) infrastructure, energy storage, and polysilicon. 

 

“The balance sheet delevers as spectrum and creditor liabilities unwind,” Morgan Stanley noted. The brokerage raised its Earnings before interest, tax, depreciation and amortisation (Ebitda) and earnings per share (EPS) estimates by 1-4 per cent for F26-F28, rolling valuation forward one year, and raised its enterprise value (EV) valuation for all verticals to reflect this shift in cash flow quality. 

Golden age for refining

The brokerage noted that RIL’s fuel refining is an underappreciated vertical, offering the highest returns, significant free cash flows, and growth through retail fuel expansion.

 

“We are seeing a ‘golden age’ for refining, creating $7-10 billion in NAV,” Morgan Stanley said. 

 

RIL's fuel refining margins are tracking near $14 per barrel (including fuel retail) – i.e., 1.5 times above mid-cycle levels as this golden age rolls on into its fourth year in 2026. Globally, diesel margins have rallied 30 per cent as underinvestment in new global refining capacity combined with disruptions in existing infrastructure, which have become more frequent in the past few years.

 

Analysts see 5-7 percent upside risk to RIL's F27e-F28e earnings as new fuel refining capacity adds lag 0.7-0.9mbpd annual global consumption growth by more than half.  

Telecom to boost FCF

Telecom is likely to add a further boost to FCF, according to the brokerage, as average revenue per user (ARPU) rise at a 9 per cent compound annual growth rate (CAGR) in F26e-F28e, broadband subscriber numbers outperform, and Gemini 3 AI offering supports subscriber switch from 4G to higher-priced 5G, while capital intensity halves. 

 

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