Reliance Industries Target Cut By Morgan Stanley; New Energy And Al Business 'Remains Underappreciated'

Reliance Industries Ltd. received a target price cut by Morgan Stanley, adding to the woes that the stock of Mukesh Ambani-led conglomerate faces. It, however, remains bullish on its new energy and AI infrastructure business, saying, "It remains underappreciated."

The new energy powering Reliance Industries' generative AI infrastructure will likely become a large driver of earnings, Morgan Stanley said in a note. The brokerage retained an 'overweight' rating on the stock and lowered the target price to Rs 1,606 apiece from the earlier Rs 1,662 per share.

The company is transitioning into a new energy company to power AI and provide India with the infrastructure for the new tech era, Morgan Stanley said. "While many investors are focusing on retail multiples and refining/chemical earnings, we see them finding a floor on our new estimates."

Investor conversations continued to focus on near-term earnings and concerns about growth in chemicals and retail—both of which have seen cyclical challenges, it said. However, Reliance has reaffirmed its plans to grow chemicals and expand its own retail brands and new commerce investments.

Morgan Stanley sees 15% CAGR fiscal 2025-27 earnings growth along with new energy investments lowering costs as key drivers. RIL's integration with energy and AI infrastructure remains underappreciated as the race for electrons continues to pick up pace, it said.

The price-to-earnings ratio is near the five-year average. It is trading at the highest discount versus local peers across verticals, similar to 2017, Morgan Stanley said.

Reliance Industries posted a 4% sequential climb in its revenue from operations to Rs 2.39 lakh crore for the quarter ended Dec. 31, 2024. The net profit of the oil-to-telecom conglomerate rose 12% sequentially during the third quarter, on the back of a strong overall performance.

Reliance Industries' rebound in retail sales in the third quarter of the current financial year along with net subscriber additions for Jio Infocomm and a strong outlook on new energy business provide a strong earnings-growth visibility in the near future, according to analysts.

RIL's stock rose as much as 0.72% during the day to Rs 1,282.9 apiece on the NSE. It was trading 0.53% higher at Rs 1,280 apiece, compared to a 0.28% advance in the benchmark Nifty 50 as of 09:34 a.m.

It has declined 3.62% during the last 12 months. The relative strength index was at 55.

Thirty-five out of the 39 analysts tracking the company have a 'buy' rating on the stock, one suggests a 'hold,' and three have a 'sell,' according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 20%.