What lies ahead for Reliance Industries after Q3

Moneycontrol Bureau

After posting better-then-expected numbers in the December quarter, Reliance Industries (RIL) is unlikely to see major upside in refining margins which have already peaked at USD 9.6/bbl, say analysts who met company management post Q3 earnings announcement.

Petchem business will see better revenues and slight improvement in margins in Q4 on incremental demand from China, they say. Read This: Reliance Industries may go up to Rs 920-925, says Harchekar

The company's exploration and production (E&P) earnings will continue to decline in short-to-medium term, but for the first time, the management sounded positive on KG-D6 prospects after getting permission to drill additional wells in the basin.

The top brass is also hopeful that the C Rangarajan Committee's proposal of scrapping current practice of administered price mechanism and linking domestic gas price to international prices will pave way for better pricing in future.

Brokerage firm Nomura believes after the Rangarajan Committee has started looking into the key issues of gas pricing, hence business environment in E&P segment has started improving. "Though RIL does not fully agree to sell gas at USD 7-8/mmbtu (million metric British thermal units)  which is lower than its expectation of USD 10-14/mmbtu, it believes the suggestion could pave way for finalising better pricing, going ahead,"  states Nomura's Ravi Adukia and Anil Sharma in a review note.

Along with E&P business scenario showing signs of improvement, the Rs 1,200 crore expansion plan in petchem segment is also on track which will boost capacity in FY14. After taking into account these factors, the firm has assigned  'buy' on the stock with a target price of Rs 1000.

Axis Capital also believes that the company will push for higher gas prices to recover its cost on the KG-DG project which may eventually happen. It has a positive outlook overall and hence has assigned  'hold' rating with a target price of Rs 950.

HSBC states though RIL has started drilling more wells in D6, it will take atleast four years for it to start production from them and the current decline from existing well will continue impacting overall performance. Hence, it is 'underweight' on the stock with a target price of Rs 800.

Jefferies states that despite the management sounding optimistic over recent regulatory developments in the sector, production recovery in KG-D6 is unlikely before FY16.  It further says that RIL will not be able to extend its Rs 10,000-crore buyback plan which investors were earlier betting on. After taking into account these factors, the firm has also assigned  'hold' rating on the stock with a target price of Rs 820.