Reliance Industries - Uncertainty hampers potential upsides - ICICI Securities

Reliance Industries' (RIL) stock has rallied on the back of sustained uptrend in complex GRMs and positive traction in approvals for some of its development plans for KG D6 block. The uptick in GRMs appears to be stronger than we had anticipated, which makes a compelling case for earnings upgrade in the stock. However, we believe the recent rally has captured in most of the positives, and any further upside would be contingent upon the government's approval for a gas pricing formula or a higher price for KG basin gas production.

We believe the approval of satellite fields and revised field development plans for MA field is more of a sentimental positive for now, considered as a harbinger of approvals for other development plans submitted by the company. Further, RIL's investments in E&P business will be contingent upon the government's decision on gas price hike (expected in the near term). FY14 could therefore be an inflection point for the next wave of investments in E&P, as RIL submits integrated development plan for satellite and other discoveries in D6 block.

RIL's investments in pet coke gasification project and refinery off-gas based cracker have commenced, which offer strong triggers, but only three years from now. We have tweaked our estimates to capture higher GRM (by US$0.5/bl) in FY13/14 on the back of recent surge in Singapore Complex GRM. Our SoTP-based target price for RIL gets revised to Rs900/share. However, the stock offers limited upside, as the spike in GRMs has been captured by the recent run-up in the stock. We downgrade RIL to ADD from BUY, as any strong upside from the current level depends on clarity on gas prices.

Source : Equity Bulls

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