Buy Reliance: Edelweiss

Edelweiss has maintained its Buy rating on Reliance Industries with a target price of Rs 1,550.

A report released on November 25 said: “The decline in margins for both refining and petrochemicals businesses are likely to dampen RIL’s Q3FY09E earnings. Factoring in the same, we have reduced our FY09 and FY10 EPS estimates to INR 81.7 (-10%) and INR 131 (-20%), respectively. We have also cut out fair SOTP target value from Rs 1,954 to Rs 1,550.

“RIL has corrected significantly due to an unprecedented fall in refining and petrochemical margins, which will impact its H2FY09 earnings. However, outlook for the company’s upstream business (contributing 57% to SOTP), remains intact. Cash flows from the upstream business and start of the RPL refinery imply 22% and 27% 2-year growth in profits and cash flows, respectively. At Rs 1,127, RIL is trading at attractive valuations at 8.6x FY10 consolidated EPS, and at 6.1x FY10 CEPS. While triggers remain from KG-D6 gas production and RPL refinery, next value drivers for RIL are expected to be: (1) further visibility of blocks where gas reserves have been certified (NEC-25 and CBM blocks), and (2) positive drilling results and quantification of reserves from other exploration blocks.

“Our revised SOTP value of Rs 1,550/share indicates ~37% upside to the stock from the current level. We maintain our BUY recommendation on it.”

Source : UTVi