Reliance's Monetisation Cycles Getting Shorter, Says Morgan Stanley
This multi-decade profile shift offers under-appreciated opportunities as the earnings cycle turns, says the research firm.
Morgan Stanley has said Reliance Industries Ltd. was moving into a phase of concurrent monetisation and investment cycles.
The brokerage reaffirmed its overweight rating, citing under-appreciated opportunities for the company, with target price of Rs 2,821.
A stake sale in its retail arm, Reliance Retail Ventures Ltd., to Qatar Investment Authority and a ramp-up in revenue from new projects highlight the shortening investment to monetisation cycles for RIL, it said in a note on Thursday.
Over the past two years, RIL has invested $10 billion in its retail venture with a focus on increasing upstream and downstream integration along with growing its brand portfolio, Morgan Stanley said.
It estimated Reliance Retail's earnings to pick up pace by 2024, with a compound annual growth rate of 24% over financial year 2023–26, leveraged by store and warehousing expansion over the past two years.
The financial services firm expects the phase of concurrent monetisation and investment cycles, which emerged for the first time in two decades, to continue till 2027. "This multi-decade profile shift offers under-appreciated opportunities, in our view, especially as the earnings cycle turns."
The brokerage pointed to the company's guidance to maintain its net debt below its Ebitda and the reduction in duration of capex to cash flow cycles to two–three years from five–six years in the past. "We think that RIL is on the cusp of an earnings upgrade cycle and that its capex will peak over the next few quarters."
Morgan Stanley highlighted a guidance of a 50% scale-up in gas production over the next few months, improvement in refinery margin and the launch of 5G services for broadband.
The company has also guided for the startup of module facilities in its new energy vertical over the next year. RIL has historically outperformed estimates and expects a ramp-up in revenues to start by the end of 2023, with sustained growth over the course of the next year, according to Morgan Stanley.
