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Synopsis: Reliance Industries Ltd (RIL) is poised to add $100 billion to its market capitalization in its fourth monetization cycle this century, driven by business upcycles, new cash flow streams, and improved valuation multiples, according to Morgan Stanley. This cycle, distinct from its predecessors, is supported by a business upcycle, domestic demand, and lower competition. Morgan Stanley's forecast includes a 12% annual growth in earnings per share (EPS) from FY24-27, with a price target of Rs 3,540.
Reliance Industries Ltd (RIL) can potentially add $100 billion to its market capitalization in what Morgan Stanley describes as the company's fourth monetization cycle this century. This prediction is underpinned by the anticipation of new cash flow streams and valuation multiples catching up as RIL's business cycles inflect. The company’s tagline, "Growth is Life," continues to resonate as cash flows from this monetization cycle are concurrently invested in new energy and new chemicals.
Morgan Stanley notes that RIL's previous monetization cycles have delivered 2-3 times value creation for shareholders over nearly three decades, each decade witnessing over $60 billion in market cap creation. This value creation has been driven by RIL's market share gains, complete integration, and its ability to consistently exceed investor expectations under Mukesh Ambani's leadership.
This fourth monetization cycle follows $60 billion in investments from 2021-2023, the shortest investment cycle for RIL since the 1990s. Investments in new energy, retail expansion to capture market share from the unorganized sector, and repurposing existing energy businesses are expected to sustain earnings growth consistently beyond the next three years, provided the return on capital employed (ROCE) remains above 10%.
Morgan Stanley projects a 12% compounded annual growth in earnings per share (EPS) from FY24-27, driven by recent telecom tariff hikes, oil prices, and refining margins. They have raised EPS estimates slightly for 2025, by 7% for 2026, and by 8% for 2027, setting a new price target of Rs 3,540 from the previous Rs 3,046. This optimistic outlook is supported by RIL's proven track record of significant market cap inflection upon delivering new revenue streams, such as new energy and higher telecom tariffs/chemical margins.
In each of the past three investment cycles, RIL's valuation multiples have behaved differently. Morgan Stanley expects RIL’s return on equity (ROE) to exceed its cost of capital as it transitions to a more profitable, sustainable, and less cyclical growth model due to changes in its business and capital structure. Consequently, they have raised their multiples (in SOTP) by 0.5-1 time, aligning RIL with domestic and global peers that have experienced a business upcycle and a 30% re-rate in multiples over the past year.
Disclaimer: The information provided is based on market analysis and forecasts which are subject to change. Always perform your own research before making any investment decisions.
