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

- Company reported 1QFY13 PAT of Rs.4470 crore, slightly ahead of consensus estimate of the market, mainly on account of deferred tax reversal.

- Petrochemical EBIT margin was at its lowest in five years at 8%, owing to pricing pressure on weak polyester demand.

- Gross refining margin at USD 7.6/barrel was in line and flat qoq.

- E&P was in line with KG-D6 averaging 32.5 mmscmd.

- Overall, it seems that the challenges remain.

- Management devoted a lot of time to provide clarity on E&P including its future potential and highlighted that the company and its partners are closely aligned on reserves disclosure. However, no meaningful catalyst could be seen for the stock in the near term, though slightly comforted on the E&P outlook.

- Management believes that both refining and petrochemical divisions would be stronger qoq.

- While the developments in Shale are encouraging with a six-fold yoy jump in production for RIL, it seems that a meaningful value creation may take some more time.

- Retain GRM and petchem EBIT margin assumptions for FY13 at USD8/barrel and 11% respectively.

- Key upside triggers would be gas price hikes and faster government approvals leading to meaningful development in reserve accretion.

- E&P value creation like Shale remains a long term story.

- Better than expected refining and petchem earnings would be upside risk to the target price while value destructive acquisitions would be the downside risk.

Source : Equity Bulls

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