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Morgan Stanley bumps up Reliance target as conglomerate eyes blue hydrogen crown, sending shares to all time high

Morgan Stanley has upgraded target price to Rs 3,253 a share and reiterated its overweight rating

April 21, 2022 / 11:01 AM IST

Morgan Stanley raised the Reliance Industries Ltd (RIL) target price by 20 percent as the conglomerate eyed the global blue hydrogen crown, sending shares to a record high of Rs 2776.40 on BSE, up 1.71 percent from previous close.

The brokerage sees shares rising 50 percent from their closing price on Wednesday over the next 12 months in its best-case scenario for the company as it believes that the market is yet to provide any value to the new green energy initiatives.

“The value-creation potential from the global pivot on energy security and the energy transition remains highly underappreciated for RIL,” Morgan Stanley said in a note.

The brokerage firm believes that the share price implies near-zero value for the new energy business and no upside from net asset value accretion in the traditional energy business, especially as it funds the next investment cycle.

In its bull-case, Morgan Stanley has set a price target of Rs 3,975 per share on the stock on the condition that the company’s refining business margins remain elevated and more clarity emerges on its green energy investments.

Further, the brokerage house said that more progress in RIL’s e-commerce initiatives over the past few years, notably, JioMart as well surge in average revenue per user in the telecom business.

In its base-case for the company, Morgan Stanley expects the stock to rise to Rs 3,253 over the next 12 months aided by core gross refining margins of $12 per barrel in 2023-24 and petrochemical business’ operating profit per tonne rising to $350.

Within that scenario, the brokerage firm has ascribed an enterprise value of $27.5 billion for RIL’s green energy business and estimated average revenue per user to rise to Rs 201 per user by 2023-24.

“An earnings upgrade cycle is taking hold and is key to reversing RIL's past year of underperformance,” Morgan Stanley said.

That said, the risks to Morgan Stanley’s positive outlook on the oil-to-telecom conglomerate stem from ban on single-use plastic that could hurt its petrochemical business and hiccups in executing its green energy investment plan.

While Morgan Stanley’s ‘overweight’ stance on the stock is in-line with other analysts on the Street, its base-case price target is 17 percent higher than the consensus price target of Rs 2,774.94.

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first published: Apr 21, 2022 09:45 am