Buy Reliance Industries; target of Rs 1457: KR Choksey

Reliance Industries Ltd (RIL) reported net profit of INR 7506 cr, below market expectation on the backdrop of lower refining margins ($10.8/barrel Vs street expectations of $11.5/barrel). Net profit increased 4.2% QoQ and 3.6% YoY; Rise in PAT is mainly on account of higher refining margins and stable production from refining and petchem segment. GRMs stood at USD 10.8/ barrel compared to USD 10.1/ barrel in Q2FY17 and USD 11.5 in Q3FY16. GRMs were higher QoQ because of increase in gasoline, diesel cracks.

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 $10.0-11.5/bbl in 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 and believe that it will start contributing to the top line from FY 18 onwards. We recommend BUY with the target price of INR 1,457/share based on SOTP methodology.