Retain 'hold' rating on Reliance Industries (RIL) - Geojit BNP Paribas Financial Services

- The stock has been currently traded in the range of Rs.860 – 870 as against the target price (TP) of Rs.847.

- 2QFY2014 EBITDA at Rs.7850 crore is up 11% qoq and better than street estimates.

- 2QFY2014 PAT at Rs.5490 crore is up 2.6% qoq but lower than street estimates of Rs.5560 crore.

- Weakness in refining was offset by strength in Petchem spreads.

- Other income was Rs.2060 crore.

- Production from KG D-6 averaged at 13.98 mmscmd for 2QFY14.

- The retail segment achieved EBITDA of Rs.160 crore in 1HFY14 and Rs.95 crore in 2QFY14.

- On the E&P front, the company has got the approval for the development of the R-Series fields and the first gas is expected in four years and the peak is expected at 12 mmscmd.

- The petchem expansion continues to remain on track highlighting company's execution strength.

- Refining was weak but strong export demand resulted in utilization at 114%.

- Retail growth remains one key focus.

- Hold rating is maintained on the stock and it seems that fundamentals at RIL improve as the refining business weathers near–term weakness.

- In addition, the petchem expansion is expected to bring back the earnings growth story.

- It seems that E&P is the only business where the outlook remains weak. However, the most negatives associated with production other than the outcome of the gas price hike are priced in.

- The rating on the stock may be re-looked if there is correction in stock price, which could come from near term weakness in refining and gas price uncertainty.

- Upside risk is quick and sustained turnaround in refining.

- Downside risk is lack of gas price hike, which would impact production.

Source : Equity Bulls

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