IIFL analyst Prayesh Jain recommends buying Reliance with a target price of Rs 1,027. According to him, despite ambiguities around gas price hike, the core business of refining and petrochemicals will earn substantially over the next couple of years and are the key drivers that the market should focus on.
Among other oil and gas stocks, Jain picks BPCL and calls it the best oil marketing company in terms of financial management as well as operational performance.
Also Read: See 50% upside in Reliance Industries: Phani Sekhar
Below is Prayesh Jain’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.
Anuj: About 15 days back Reliance was on the verge of a 52-week low and since then it has been a one way rally through out 10-12 percent. What’s your call on the stock now?
A: We have a buy recommendation on the stock with a target price of Rs 1,027 and this has been a call for pretty long time now. While there are lots of ambiguities around the gas price hike like whether it will come or not with bank guarantees or without bank guarantees, we believe the core business of refining and petrochemicals will add substantial value and will earn accretive over the next couple of years substantially and that would be the key driver. This is where the market should focus rather then just around the E&P business which currently accounts for around 1.5-2 percent of the stand alone revenues and around 10 percent of the earnings before interest and tax (EBIT) levels. So, the major drive or major trigger is from the core business of refining and petrochemicals.
Ekta: What about some of those ambiguous issues because the Supreme Court has begun the final hearing on pleas against the KG D6 gas price hikes. How would you factor FY15 numbers and what is the worst and best case scenario for Reliance?
A: The gas price doubles and the production remains at 50 mmscmd so in that case the earnings go up by 6-7 percent for Reliance on a stand alone basis. In worst case, the gas price hike does not come in, we will have to prune our estimates by 6 percent.
Anuj: Other oil and gas stocks like Bharat Petroleum Corporation Limited (BPCL), Oil and Natural Gas Corporation Limited (ONGC) have seen quite a bit of rally, BPCL has seen massive rally, would that be one of your top picks?
A: BPCL has been our top pick for pretty long time. It is the best oil marketing company (OMC) in terms of financial management as well as operational performance. Also, it has prolific exploration and production (E&P) portfolio and especially in Mozambique where Anadarko has raised the reserve estimates and that would add substantial value to BPCL from FY18 in terms of revenue and earnings. So although it's a long drawn, there is more value from the blogs like Brazil and therefore, BPCL remains our top pick there.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
