Reliance Industries Jumps To A Record As Morgan Stanley Hikes Target On Hydrogen Boost
Morgan Stanley raises target price of Reliance Industries, citing growth opportunities from energy adoption for green business
Reliance Industries Ltd. is best positioned to capitalise on the hydrogen opportunity as India pushes alternatives to polluting fuels, according to Morgan Stanley. That drove shares of the nation’s most valued company to a record high.
Heightened awareness of energy security is creating new and bigger markets for solar panels and electrolysers, which will aid Reliance's new energy return on capital employed, the financial services provider said in an April 20 report. “We estimate tightness in the gas and fuel refining markets will fund nearly half of RIL’s new energy capex over the next three years...”
India’s hydrogen adoption plans are scaling up more quickly than anticipated, the report said. Technology’s evolution and electrolyser affordability will cut hydrogen prices in half by 2026 to parity with gas in India, pointing to an even quicker ramp-up in domestic demand and exports from India, it said. Electrolysers, which form one of the four gigafactories RIL is building, are becoming a necessity in the energy transition, it said.
“RIL’s petcoke gasifiers can be monetised at higher multiples as hydrogen demand outstrips supply, and green/blue hydrogen export potential also supports multiples, especially as RIL repurposes its energy/chemicals operations,” it said. “Finally, RIL’s hydrogen push will lower operating costs medium term, while advancing its net-zero carbon target.”
The research house estimates hydrogen to achieve a 14-15% ROCE for RIL, on a par with its highly profitable oil-to-chemicals operation.
Morgan Stanley raised RIL’s target price to Rs 3,253 apiece from Rs 2,926—an implied upside potential of 19.66%. It reiterated its ‘overweight/in-line’ stance for the Mukesh Ambani-led conglomerate. Morgan Stanley’s target price is the highest among all analysts tracking the company.
Morgan Stanley joins other top research firms that see RIL’s focus on energy adoption as a positive by most analysts. Goldman Sachs termed the company ‘India’s largest greenabler’, and expects it to be a major beneficiary of evolution of the green energy ecosystem. Nomura and Jefferies, too, see the green energy shift as favourable for RIL.
Shares of Reliance Industries rose 2.6% to a record Rs 2,789 in intraday trade. The stock closed with 2.34% gains. Over the last three sessions, the scrip has rallied 9.3%. Of the 40 analysts tracking the company, 26 maintain a ‘buy’, 10 suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The average of the 12-month target prices implies a downside of 0.2%.
Other key highlights from the Morgan Stanley report...
Estimates India’s hydrogen total addressable market at $19 billion (Rs 1.45 lakh crore) by 2030, when the fuel will meet 5% of the country’s energy demand.
Expects 10% boost for RIL’s net asset value, in anticipation of a quicker hydrogen monetisation.
India’s 2030 hydrogen production target would absorb the 100 gigawatt cumulative solar panel capacity that RIL aims to achieve.
Value-creation potential from the global pivot on energy security and the energy transition remains highly underappreciated for RIL.
Firm remains well-equipped and funded for new energy investments.
Upside Risks For RIL As Per Morgan Stanley
Tightening global refining and chemical markets as the global cost curve inflects.
Rising market share and reduced competitive intensity in telecom industry.
Partnerships in new energy business
Downside Risks For RIL As Per Morgan Stanley
Ban on single-use plastic that could hurt margins in the medium term.
Delay in monetization of its energy and telecom assets.
New energy investments see execution hiccups.
