Stock Market Today: Reliance Industries’ share price has increased by more than 14% in 2024 and stays among the top ten Sensex stock gainers. Nonetheless, Reliance Industries’ stock has increased by a spectacular 31.6% since its closing lows in October 2023.
Morgan Stanley Research maintains outperform ratings for Reliance Industries, with a target price of ₹3046 implying further upside for the company.
According to Morgan Stanley, “it’s all about re-rating in this stage of the value creation journey.”
According to Morgan Stanley, Reliance Industries’ future depends on re-rating as net debt reduces, investments stall, global fuel demand grows, and long-term supply concerns pass. Furthermore, telecom rate hikes are nearing completion, and earnings from new energy sources are expected to begin shortly.
Reliance Industries has re-rated successfully in the recent past
According to Morgan Stanley, Reliance Industries has re-rated 10% year to date and approximately 35% in the last year. According to Morgan Stanley estimates, Reliance Industries now trades at 24 times the price-to-equity ratio and 10 times Enterprise Value (EV/EBIDTA for FY2026.
Further Potential for Rating for Reliance Industries across Verticals
Morgan Stanley believes that Reliance Industries’ shares might be rerated based on numerous verticals, including new energy, refining, chemicals, and telecom.
As the consensus during the last decade began to factor in a quicker decline in global fuel consumption, Reliance Industries’ Energy vertical began to suffer. However, given that global fuel consumption is predicted to rise by 2024 and EV sales are falling in several countries, refining vertical multiples may rebound.
Future earnings will be heavily reliant on the profitability of fuel refining. Morgan Stanley forecasts a 6% quarterly increase in Reliance Industries’ net profit.
Morgan Stanley also predicts that, despite continued negative chemical margins, the oil to chemicals (O2C) Ebitda will reach its highest level since the June 22 quarter. Even with decreasing oil discounts, gross margins will rise to more than $12 per barrel.
Ebitda stands for earnings before interest, taxes, depreciation, and amortization.
Concerns in the Chemicals Segment remain despite an 18-month olefin destocking and projections of more capacity increases over the next five years. However, similar to prior downturns, Morgan Stanley believes that the forecast for earnings and multiples is at its lowest point right now.
A restoration to normal demand should help producers reach mid-cycle by raising multiples and global utilisation. Morgan Stanley expects Ebitda per ton to rise 3-4% sequentially this quarter owing to higher olefin margins and rising ethane prices.
Morgan Stanley expects new energy segment investments to be monetized by the end of 2024.
In terms of revenue growth, Reliance Industries’ telecom division has underperformed in the telecom market.
Lower debt and less capex intensity to sustain valuations
According to Morgan Stanley, Reliance Industries’ net debt and decreased capex intensity will support valuations in FY25.
