Reliance Industries Ltd. will be a major beneficiary of China's recent drive to curb overcapacity across energy and solar supply chains, also called 'anti-involution'. This triggers a re-rating cycle for RIL for the first time since the Covid-19 pandemic, Morgan Stanley said.
Anti-involution refers to China's current campaign to combat intense, self-destructive competition and diminishing returns in its economy by regulating price wars and overproduction.
Analysts at the multinational brokerage firm said the conglomerate's self-anti-involution in consumer retail and telecom is also bearing fruit. "Overall, involution adds $20 billion in NAV and 17% to the fiscal 2028 EPS estimate," a note said.
A third of polysilicon capacity is being rationalised in China while RIL ramps up its fully-integrated supply chain as the only player in South Asia, analysts said. RIL's own energy costs may fall up to 40% by 2030 as it shifts to renewable sources for internal power needs in two years. As RIL starts to export and sell domestically, analysts estimate new energy to contribute 13% to earnings.
In the chemicals segment, Reliance Industries is also upgrading its margins by increasing cheap US ethane feedstock imports by 50% and expanding PVC capacity in the undersupplied Indian market. Besides, China's anti-involution marks the bottom of the petrochemical cycle, the note said.
RIL Target Price
Morgan Stanley raised its target price for RIL shares to Rs 1,701 from Rs 1,602. The revised target indicates a potential upside of 25.6% over Monday's closing price. The stock has fallen 9% in the last 12 months and risen 13.4% so far this year.
Out of the 37 analysts tracking RIL, 34 have a 'buy' rating on the stock, one recommends a 'hold' and two suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price target implies a potential upside of 19%.
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