Mumbai
Global brokerage house Morgan Stanley has described Reliance Industries’ (RIL’s) current investment cycle as less aggressive, saying it will reduce the cost of the company’s equity.
In a report released on Monday, the brokerage has raised its price target on the stock to Rs 3,085 from the earlier target of Rs 3,015, saying the firm is its top pick.
The RIL stock was trading up 1.33 per cent on the BSE on Monday, at Rs 2,563.50 apiece.
Lower competition in telecom makes earnings predictable and the retail business is witnessing steady growth. The firm believes that with integration into chemicals and access to cheaper Middle East gas feedstock should help reduce the cyclical nature of returns, Morgan Stanley said.
It also noted that investment cycles have unwound with two to three times value creation for shareholders over the last two decades, with every decade seeing an addition of $60 billion in market capitalisation.
The investments in new energy and retail expansion to take market share from unorganized sector, and repurposing of existing energy business gives RIL a long runway to deliver earnings growth consistently even beyond the next three years, it said.
Morgan Stanley also said the current investment cycle would have the lowest balance sheet leverage ratios compared to any other cycle. This will be due to higher refining margins, gas production, rising telecom tariffs, scale-up in the grocery business, and quicker monetisation of new energy.
In contrast to the last investment cycle, we are also seeing RIL’s investment cycles coincide with upcycles in its core businesses, Morgan Stanley said.
