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Jun 17, 2013, 09.46 AM IST | Source: Moneycontrol.com

Kotak upgrades Reliance Industries on capex cycle gains

Kotak feels the beginning of a significant capex cycle (over USD 15 bn) in its core businesses will translate into (1) growth in volumes for the petchem and Exploration & Production segments and (2) enhancement of margins for the refining and petchem segments

Moneycontrol Bureau

Brokerage house Kotak Securities has upgraded its rating on Reliance Industries to 'add' from 'reduce', and raised price target to Rs 870 from Rs 855 earlier, on hopes of higher volumes and margins in the petchem and refining businesses.

RIL shares were flat at Rs 812 in early trade.

"The beginning of a significant capex cycle (over USD 15 bn) in its core businesses will translate into (1) growth in volumes for the petchem and Exploration & Production segments and (2) enhancement of margins for the refining and petchem segments," said the Kotak note to clients.

"We compute FY2017E EPS (standalone adjusted for treasury shares) at Rs 105 assuming (1) full utilization of expansion projects, (2) reasonable margins for core businesses, (3) revival in gas production and (4) USD 8/mn BTU gas price.

We compute fair value of Rs 1,050 (FY2017E EPS basis) assuming a midcycle ex-growth P/E of 10 times; the current stock price offers a reasonable upside assuming (1) successful commissioning of expansion projects and (2) a supportive operating environment," said the note.

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