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RIL's new investments may double profits, says Morgan Stanley, raises stock's target price

Shares of Reliance Industries Ltd (RIL) rose nearly 2% to 2,581 apiece on the BSE in Monday’s trading session after global brokerage Morgan Stanley in a report said that the fourth investment cycle of an estimated $50 billion spending over the next three years could help the conglomerate double its earnings.

“RIL’s fourth investment cycle this century has significant differences to past cycles, underappreciated energy tailwinds and the potential to double profits by 2027,” the note stated.

The spending is planned on chemicals, 5G, retail and new energy over the next three years. However retail, telecom and new energy will likely be more front-loaded in the next two years with about 25% of total investments in each of the verticals over the next three years, Morgan Stanley added while maintaining overweight rating on RIL shares and increasing target price to 3,085 (from 3,015).

“The 4th investment cycle is targeted to cater not just to the domestic market, but also international opportunities in green infrastructure, especially in new energy and chemicals and also telecom with the tie-up with Qualcomm,” it said.

Reliance Industries’ 45th annual general meeting (AGM) last week touched upon the company’s ambitious plans across business verticals, particularly the ensuing 5G launch, foray into the FMCG space, and new energy investments.

The AGM laid out the succession blueprint along expected lines and new phase of capex on new growth platforms. Reliance Jio laid out 2 tn investment plan on 5G with pan-India roll-out by December 2023 while Retail announced entry into fast moving consumer goods (FMCG) business. Renewable transition roadmap provided capex and commissioning timelines.

“We incorporate the higher capex and earnings upside from Jio and O2C. We increase our capex est for FY23/24/25E to Rs1.59/1.55/1.59 tn respectively, to factor in higher capex in Jio, conventional O2C and New Energy businesses. We also build in $9 bn valn of the O2C capex and higher subs in the home broadband segment,” another global brokerage Jefferies had said in a note last week post AGM announcements.

Retail, Telecom, and new energy can be the next growth engines over the next two-to-three years, given the large technological advancements and ambitious growth targets, as per analysts.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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