Edelweiss is bullish on Reliance Industries has recommended buy rating on the stock with a target price of Rs 1151 in its research report dated January 03, 2018.
Edelweiss' research report on Reliance Industries
We had highlighted that Reliance Industries’ (RIL) USD20bn core capex is nearing fruition, which, unlike the uncertainties associated with Reliance JIO (RJIO), will quickly bolster earnings. The company has now commissioned one of its most profitable core projects, a USD4.5bn off-gas cracker (ROGC), which is estimated to generate EBITDA or USD1.2bn (8% of FY19E EBITDA) and healthy project RoCE of 21%. The project is one of the most competitive globally with feedstock advantage and 33% lower capital costs. Similarly, its other oil-leveraged mega project, ethane imports from US, is already generating high returns and petcoke gasification (USD5bn) project should commence operations shortly. Maintain ‘BUY’ with revised TP of INR1,151 (INR1,104 earlier), amongst the highest on the Street, as we rollover to FY20E.Outlook
With commissioning of mega core projects, we expect RIL’s FCF to turnaround, RoE to increase and profit to double in 4 years. Successful execution of RJIO bolsters our confidence in the mega venture. The stock trades at 1.3x FY20E P/BV. We reiterate ‘BUY/SO’ with revised TP of INR1,151 as we rollover valuation to FY20E.
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