Neutral on Reliance Industries - Motilal Oswal

RELIANCE INDUSTRIES: Uptick in refining and polyester to neutralize E&P decline in 3QFY11; Core business outlook hinges more on global recovery; Neutral

- RIL's core business outlook looks encouraging for 3QFY11 based on the core business margin trend till date.

- RIL has reported QoQ GRM growth of 3% in 1QFY11 and 1% in 2Q. For 3Q, based on the margin trends till date, RIL can report a QoQ increase of at least 11%.

- KG-D6 vol declined from 59mmscmd in 2Q to ~55mmscmd in 3Q. However, decline in profit will be compensated by increase in refining and petchem margins.

- For every, US$1/bbl change in the GRM RIL's EPS changes by Rs6/share. For every 10mmscmd change in the KG-D6 production EPS changes by Rs3/sh.

- We believe investors should focus on: (1) ramp-up of KG-D6 volumes; (2) clarity on 7-year income tax holiday for KG-D6 gas (3) margin trend in refining and petchem; (4) execution on downstream projects announced in AGM (off-gases cracker, PX/PTA expansion and IGCC), and (5) developments on its BWA foray.

Adjusted for treasury shares, RIL trades at 14x FY12E EPS of Rs73. We value RIL on SOTP basis to arrive at a price target of Rs975. Neutral.

Source : Equity Bulls

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