Potential for re-rating across verticals in RIL: Morgan Stanley

This is particularly evident in the refining vertical, where multiple expansion is anticipated, in line with the trend observed in US refiners year-to-date, as stated in the report released by the brokerage firm, estimated to witness a 6% quarter-on-quarter increase in net profit for RIL in the upcoming earnings for Q4FY24, primarily driven by fuel refining profitability, it said.

In the chemicals segment, concerns persist following 18 months of de-stocking in olefins and forecasts of new capacity additions over the next five years. However, despite sluggish margins in chemicals, the oil-to-chemicals (O2C) is projected to reach a peak, with gross refining margins (GRMs) expected to rise to US$12+/bbl, despite reduced discounts on oil, Morgan Stanley analyst Mayank Maheshwari said in a note.

The Mukesh Ambani-led company, which is expected to declare its March quarter numbers later in the month, is seen as witnessing a 3-4% quarter-on-quarter increase in EBITDA/ton, driven by improved olefin margins and falling ethane prices.

The report further suggests new energy investments are slated to be monetized from end-2024. While concerns regarding competition with China's chain persist, demand creation by the government on solar panels through rooftop solar subsidies and tariffs is expected to support lower operating costs for RIL's integrated energy vertical.

In the telecom sector, RIL's telecom arm has seen relative underperformance in growth compared to Bharti's India operations. However, the likelihood of industry hikes has increased, with Vodafone Idea raising capital, potentially leading to a catch-up in RIL's telecom vertical multiple towards as per Morgan Stanley, estimating to witness 11% year-on-year EBITDA growth, driven by net subscriber additions of 11.5 million, slightly higher than the previous quarter.

However, risks of a ban on single-use plastic hurting margins in the medium term, delay in monetization of its energy and telecom assets and new energy investments seeing execution hiccups can be seen as a few of the risks on the downside.

Trendlyne data shows that out of the 33 analysts who have coverage on RIL, a majority of 27 have buy ratings on the stock. Only two of them have a bearish stance on the stock, while the remaining 4 have hold ratings.

Currently, at Rs. 2927.30, the stock has yielded 125% positive returns for the investors in the past one year.

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