Sharekhan is bullish on Reliance Industries has recommended buy rating on the stock with a target price of Rs 1110 in its research report dated January 19, 2017.
Sharekhan's research report on Reliance Industries
Reliance Industries Ltd (RIL) reported marginally higher standalone operating profits of Rs. 13,744 crore as petrochemical EBIT margins slightly exceeded estimates at 17.4% and petrochemical production was higher than expected at 8 mmt (rising 29% y-o-y). Gross refining margin (GRM) at $11.6/bbl was in line with our estimates and RIL’s GRM premium over the Singapore complex GRM widened to $4.4/bbl in Q3FY2018 from $3.7/ bbl in Q2FY2018. Standalone profit after tax (PAT), of Rs. 8,454 crore was also in-line with our estimates as marginally higher operating profit was offset by higher-than-expected depreciation and lower-than- expected other income. The domestic oil & gas business continued to disappoint as natural gas production from KG D-6 block declined 34% y-o-y to 16 billion cubic feet (bcf) and as the company reported an EBIT loss of Rs. 91 crore for the segment.
Maintain Buy rating with revised PT of Rs. 1,110: To factor strong performance of the telecom business, we increase our FY2018E EPS and maintain it for FY2019E and FY2020E. We also fine-tune our valuation for the telecom business and revise our price target on stock to Rs. 1,110. We maintain our Buy rating on the company, as we expect EBITDA to clock a strong 21% CAGR over FY2017-FY2020E, on account of an earnings boost from commissioning of core downstream projects and resilient refining and petrochemical margins. At CMP, the stock is trading at 13.8x FY2019E EPS and 12.6x FY2020E EPS.
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