Asset monetisation helped Reliance Industries create value: Morgan Stanley

Asset monetisation cycles have created 2-3x value for the shareholders of Reliance Industries in the last three decades, with each decade witnessing $60 billion in market cap creation, according to a report by the US-based financial services firm Morgan Stanley.

While increasing the valuation of RIL’s retail business stake to $119 billion, the firm said it estimates the EV/Ebitda (enterprise valuation to earnings before interest and depreciation, tax and amortisation) multiples of 33 times from 32 times to reflect the higher industry peers multiples. "RIL is in its fourth monetisation cycle this century; we see up to US$100 billion (bull case) in value creation as business cycles inflect, new cash flow streams emerge, and multiples catch up," the report said.

RIL shares closed at Rs 3,120 a share with a total valuation of Rs 21.11 trillion ($253 billion) as of Monday.

 “For the e-commerce business of Jiomart, we apply a multiple of 2x EV/sales (1.8x previously), in line with global peers. We believe growth prospects in retail remain strong as demand grows with RIL's store expansion,” the report said. The brokerage also said consumer retail should see traction as a large part of the store expansion and acquisition of brands is completed.

Morgan Stanley said it has valued RIL's 66.43 per cent stake in digital investments at an implied EV/Ebitda multiple. “We apply a target multiple of 11x (9.5x previously) for the telecom vertical to reflect higher peer multiples,” it said.

On the new energy business, the firm said, it has valued the new energy business using an EV/invested capital multiple as it ramps up investments with the company winning production-linked incentives from the government of 6GW for integrated solar supply chain and 5GW battery production. “We use F25 net debt to factor in the $16 billion in annual investments and value RIL's investments on the basis of reported book values, as well as recent acquisitions,” it said.

“Key to this has been RIL's market share gains, complete integration, and most importantly, ability to execute above investor expectations each time the company has re-imagined its business. This monetisation follows $60 billion in investments in 2021-23, which was the shortest investment cycle since the 1990s for RIL,” the report said.

Investments made in new energy, retail expansion to take market share from the unorganised sector, and repurposing of existing energy businesses provide a long runway to deliver earnings growth consistently even beyond the next three years should Return on Capital Employed (ROCE) be sustained above 10 per cent, the report said.

The report said due to the recent telecom tariff hikes, oil prices, and refining margins, it has raised the EPS (earning per share) estimates fractionally for 2025, by 7 per cent for 2026, and by 8 per cent for 2027.

“RIL has been a ‘show me’ story for the past decade and has seen significant market cap inflection once new revenue streams such as new energy, higher telecom tariffs/chemical margins have been delivered,” the report said.