Business & Marketing

RIL share price up 2%, top Sensex contributor on O2C biz hive off news; Morgan Stanley sees 12% rally

Morgan Stanley sees significant upside risk to earnings and multiples for O2C as RIL has invested in new energy/technology

RIL share price jumped over 2 per cent to Rs 2,048.70 apiece on BSE on Tuesday, after the oil-to-telecom conglomerate announced to reorganise its oil-to-chemical (O2C) business into an independent subsidiary by the second quarter of the FY22. RIL stock was the top BSE Sensex contributor, fueling the 400-point rally in the index. So far in February 2021, Reliance Industries Ltd share price has gained 8 per cent. While on a year-to-date (YTD) basis, RIL stock price has managed to gain 3 per cent. Mayank Maheshwari, Equity Analyst, Morgan Stanley, said that RIL’s demerger plan for Oil to Chemicals (O2C) business is a step towards monetisation. The research and brokerage firm has given an ‘overweight’ rating to Reliance Industries Ltd and sees over a 12 per cent rally in the stock price.

Also read: Mukesh Ambani’s RIL initiates O2C biz spin-off, expects NCLT approval by second quarter of FY22

RIL’s next expansion leg

Morgan Stanley also said that acceleration of Mukesh Ambani-led RIL’s new energy and material plans into batteries, hydrogen, renewables and carbon capture, point to the next leg of multiple expansion and clarity on the next investment cycle. It has given a price target of Rs 2,252 apiece. So far in the intraday, 1.33 lakh shares have traded on BSE, while on the National Stock Exchange, a total of 36.75 lakh shares have exchanged hands. With the reorganisation of its oil-to-chemical business by the second quarter of the coming financial year, RIL will have four growth engines- digital, retail, new materials and new energy. While the market appreciates the value for the first two businesses, Morgan Stanley sees significant upside risk to earnings and multiples for O2C as RIL has invested in new energy/technology.

Reliance Industries: Stock Talk

Last year on March 23, 2020, RIL shares plunged to a 52-week low of Rs 868 amid a global sell-off in equities on the back of the COVID-19 pandemic. It then surged to a record high of Rs 2,369 apiece on BSE in September following a series of global investments in its digital and retail arm. However, the stock price is still 13.5 per cent off from its lifetime high. According to Morgan Stanley, execution on Jio Mart, rising market share and reduced competitive intensity in the Indian telecom industry, and improvement in core energy margins, are among key risks to the upside. While the downside risks include potential ban on single-use plastic that could hurt margins in the medium term, lower utilisation of recently started downstream energy projects, and delay in monetisation of its energy and telecom assets.

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