Reliance Industries Ltd’s third quarter of FY13 PAT at Rs 5,500 crore (up 24 per cent y-o-y and 2 per cent q-o-q) was above our estimates of Rs 5,060 crore mainly on account of higher than expected GRMs (gross refining margin) at $9.6/bbl (our expectation was $8.5/bbl) and lower than expected effective income tax rate at 20 per cent (our expectation of 22 per cent).
We have revised our target price to Rs 867/share (from Rs 771/share earlier) to factor: 1) higher GRM at $8.6/bbl in FY13 and FY14; and 2) Higher refining and petro chemical valuation multiple at 6.5x FY14E EV/EBITDA (vs 6x earlier) given improving margin environment. RIL valuation seems stressed at 12.5x FY14E EPS and 8.1x FY14E EV/EBITDA given 1) increased share (> 80 per cent) of cyclical refining and petro chemical businesses at EBITDA level due to falling KG D-6 gas production and 2) concern of RoE at sub-12 per cent in FY14. Hence, we maintain our ‘Hold’ rating on the stock and advise investor to enter at lower price point.
(Business Line does not assume responsibility for the recommendations sourced from third party brokerages).
Reports may be sent to > blmarketwatch@gmail.com
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.