Retain 'buy' on Reliance Industries - TP Rs.827 - Geojit BNP Paribas

Reliance Industries Limited's EBIT for 4QFY12 declined 17% qoq, mainly due to steep fall in E&P (exploration & production) profitability.

However, much higher other income of Rs.2300 crore mitigated the impact on PAT, which declined only 5% qoq.

Despite weak expectations, refining and petrochem segments reported flattish EBIT.

E&P continued to disappoint with no near term solutions.

The company was forthright in explaining the reasons for the output decline at KG-D6 and has submitted revised plans to raise gas production from D26.

Also working on an integrated development plan for D1/D3.

Production upside is unlikely in the next 18-24 months as the integrated development plan by RIL and BP will be ready by CY12.

Although E&P lacks trigger, refining and petrochem businesses of the company ensures stability.

British Petroleum (BP) has paid USD 3 billion to Reliancewhich is a show of confidence in monetizing other major discoveries like R-Series, KG-D6 satellite and NEC-25.

A positive surprise in GRM (gross refining margin) could be the valuation trigger and it would have positive impact on EPS. USD1 per barrel increase in GRM is expected to improve EPS by 8%.

Continues to maintain 'buy' on the stock with a target price of Rs.827 over one year. Weaker GRM, low petrochem margin, steep production decline in KG-D6 or reserve downgrade are key risks to the target price.

Source : Equity Bulls

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