'RIL may gain market share in oil and gas industry post Covid-19'

"We expect Reliance to gain market share with better profitability as the current demand decline is driving global refiners and oil majors alike to reassess growth plans to conserve cash. This provides a significant headstart for RIL, which has expanded and upscaled its capabilities over the past five years and now is among the top quartile on cost curve," it said.

The report said that oversupplied oil markets as chemical and refinery markets tighten are a significant tailwind, as well. Its strong energy backed cash-flows should help gain market share faster in offline retail and telecom segments, as competition conserves cash, it added.

The Morgan Stanley report noted that although net debt may not decline if asset sales are pushed out, but RIL still might not rise in the financial year 2020-21.

"Our bottom-up work on the basis of F19 disclosures suggests limited liquidity challenges even if RIL's utilisation rates and margins remain challenges in its cash cow energy business. Also, about half of RIL's debt & liabilities are largely USD funded, hedged via its dollar-linked energy cashflows. However, RIL could raise debt, as some of its creditor liabilities fall due or for refinancing," it said.

RIL's challenges have been well documented in the current environment it said, as oil prices declined along with a fall in global oil product demand as a result of the Covid-19 lockdown across India and multiple geographies, potential slowdown in fashion and electronics demand for its retail segment, slower monetisation of telecom investments, and still relatively high debt post the investment cycle.

"Consequently, RIL's share price has dropped 21 per cent YTD, but still outperformed the market by 7ppts. We lower our F21 earnings outlook to factor in these challenges, and our price target also falls, as net debt rises due to reduced cashflows in F21."

While the timing of normalisation is unclear, and every month of these challenges negatively affects RIL sales volumes across all its businesses, Morgan Stanley maintained its overweight rating as its expect RIL to emerge in a strong position, as competition is struggling even more, and cyclical businesses could get more medium-term tailwinds as capacity growth globally slows, it said.