'Hold' Reliance Industries - TP Rs.751 - Geojit BNP Paribas

- Reliance Industries has been downgraded to 'hold' from the earlier 'buy' rating with a target price of Rs.751 over one year. The downgrade is mainly due to the sharp EPS cuts for FY13/ 14.

- Earnings estimates have been cut for adjusting for the steep decline in KG-D6 oil and gas fields output to 22mmscmd for FY13 and 22mmscmd for FY14.

- GRM is also expected to come down to USD8 / barrel in FY13 and while EBIT margin from the petrochem business is expected to decline in FY13.

- Considering all these negatives, 17% decline in EPS is expected in FY13 and the stock is downgraded to 'hold'.

- No re-rating catalyst is expected in the next six to nine months. It seems that increasing contributions from cyclical businesses like refining and petrochem segments, slower ramp up in shale due to low gas prices and weak E&P will keep the earnings growth muted.

- Company's strong focus on its retail business despite high losses raise doubts on the efficacy of cash deployment.

- The scrip has been an underperformer for the past five years and upsides look limited due to the absence of any catalyst.

- However, the buyback offer may check any sharp downside. Better than expected improvement on GRM may be an upside risk to the target price.

Source : Equity Bulls

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