Buy RIL; target of Rs 2206: Motilal Oswal

E&P - the new growth engine:

In RIL's successful strategy of  backward integration in its core businesses, exploration and production  (E&P) is the next frontier. As its KG-D6 gas comes online in FY09,  E&P will soon become the key growth driver, in our view. 

Refining - great times here to stay:

RIL's refining margins have  lately been scaling record highs. We expect refining margins to remain  high, as the global demand for refined products remains robust and not  enough capacity is coming online. 

Petrochemicals - mixed margin trend:

While margins in RIL's  petrochemicals business have declined from the peak in 2QFY07,  polymers continue to enjoy higher than historical average prices and  margins. In polyesters, the trend of margin contraction was reversed  in 1QFY08. However, high naphtha prices would continue to put  pressure on overall petrochemical margins. 

Retailing - potential value driver:

We believe that organized retailing  in India offers huge growth opportunity and RIL would be able to  make the most of this opportunity. Its deep pockets would help sustain  a relatively long gestation involved in building a pan-India retailing giant.  Our base-case SOTP valuation of Rs 2,206 indicates an upside of about  26%. We upgrade our recommendation to Buy.