Buy Reliance Industries: DSP Merrill Lynch

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Buy Reliance Industries: DSP Merrill Lynch

Broking house, DSP Merrill Lynch is bullish on Reliance Industries and has recommended buy rating on the stock.

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Reliance BSE | NSE 28/05/12 Are Mutual Funds betting on Reliance?

Broking house, DSP Merrill Lynch is bullish on Reliance Industries  and has recommended buy rating on the stock.

DSP Merrill Lynch report on Reliance Industries:

Strong operating performance but modest 2Q earnings rise

"Reliance Industries, RIL has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax."

2Q earnings higher than MLe; surprise mainly in refining

"'RIL's 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs 2.0 billion in 2Q as expected by us, which explains the higher EBIT."

2H outlook encouraging; news flow on E&P may be positive

"We are keeping our FY07E EPS forecast unchanged at Rs 77.5, which means a 19% YoY jump. This means that RIL's 2H net profit will have to be 30% YoY higher. We believe that this is achievable. Gains of Rs 8.2 billion from the target plus export scheme expected to be accounted in 2H will mean that the balance of 2H profit will just have to be 10% YoY higher (see Table 4). This is achievable, in our view, given that we expect petrochemical margins to be YoY higher in 2H. Even refining profit is unlikely to be YoY lower in 2H FY07 given the lower base in 2H FY06 due to weak refining margins and refinery shutdown in 3Q FY06. Even news flow on E&P is likely to be positive in 2H with potential to boost RIL's valuation. We retain Buy on RIL."