Buy Reliance Industries; target of Rs 1190: Sharekhan

Sharekhan`s research report on Reliance Industries

“In Q2FY2015, the earnings of Reliance Industries Ltd (RIL) grew by 5% YoY to Rs5,742 crore despite 7% decline in revenues, due to a better margin in refining business. The earnings growth YoY was mainly driven by higher refining margin at $8.3/bbl compared with $7.7/bbl in Q2FY2014. However, sequentially earnings were flat (up 2%) as softer GRM QoQ offset gain from better margin in petchem business.” “RIL managed to earn GRM of $8.3/bbl in Q2FY2015, a premium of $3.5/bbl over the regional benchmark (Singapore complex GRM) due to wider crude differentials and sourcing advantage. However, due to lower crude prices and supply recovery from Libya, GRM of RIL turned softer sequentially. Though, the petchem business witnessed a better margin QoQ, but the earnings of exploration business remain depressed both due to weak production in KG-D6.”“RIL managed to sustain a healthy GRM and reported better earnings than streets estimate. Further, we believe the on-going expansion of its downstream business would be the next earnings driver in the next two to three years. Currently, the stock is available at 13x and 12x, FY2015E and FY2016E earnings respectively and the valuations are lower than its historical average. We retain our Buy recommendation on the stock with a price target of Rs1,190. We shall come out with a detailed note soon,” says Sharekhan research report.    

Disclosure: Network18, which publishes moneycontrol.com, is now part of the Reliance Group.

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