Buy Reliance Industries; target of Rs 1225: KRChoksey

KRChoksey's report on Reliance IndustriesReliance Industries Ltd (RIL) reported net profit of INR 6,720 crs, exceeding our and market expectation. Net profit increased 8.0% Q-o-Q and 12.5% YoY; the rise is mainly on account of higher refining margins. GRMs stood higher at USD 10.6/ barrel compared to USD 10.4/ barrel in Q1FY16 and USD 8.3 in Q2FY15. GRMs was higher due to strong gasoline cracks (19.4 in Q2FY16 vs 19.8 in Q1FY16) product mix flexibility, robust risk management coupled with opportunistic crude sourcing and lower energy cost. Petchem EBIT increased by 8.3% on a Q-o-Q basis and 7.2% YoY, led by strong polymer deltas and healthy polyester chain deltas along with higher volumes. Retail business has been consolidated and posted an EBIT of INR 117 crs for the quarter up 5.4% QoQ and 18.2% YoY. Other income was lower primarily on account of lower accruals on investments. RIL's outstanding debt was higher at INR 172,765 crs as on Sep 30, 2015 when compared to INR 170,814 crs as on June 30, 2015. Cash in the books stood at INR 85,720 Vs INR 87,391 crs in Q1FY16. These were in bank deposits, mutual funds, CDs and Government Bonds and other marketable securities. Capex incurred for the quarter ended Sep 30, 2015 was INR 20,000 crs Vs INR 32,651 crs in Q1FY16 including exchange rate difference capitalization. Capital expenditure was principally on account of ongoing expansions projects in the petrochemicals and refining business at Jamnagar, Dahej and Hazira, Jio Infocomm and US Shale gas projects.Valuation: We believe over the medium to long term refining margins to remain range bound as capacity additions though it is delayed will eventually match the demand growth. RIL will further gain from efficient crude sourcing and product placement. We expect RIL’s GRMs to be between $9.5-10.5/bbl in FY16 and FY17 (will go up by $2.5/bbl post commissioning of petcoke regasification terminal). We expect margins to remain stable in petchem segment along with the petchem capacity addition and operational optimization. We also remain very positive on Jio as it is going for extensive beta testing and is on track for launch by end of the year. We recommend BUY with the target price of INR 1,225/share based on SOTP methodology, says KRChoksey research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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