Kotak Securities is the only brokerage in India with a sell rating on Reliance Industries. The Analyst justifies as below,
RIL’s recent JVs suggest that RIL management is looking at exploring new investment areas after a lull of 18 months; the JVs—(1) Deccan 360 for air logistics (26-50% stake; actual stake not disclosed), (2) Atlas Energy for shale gas exploitation (40% stake in certain assets of Atlas Energy) and (3) reportedly with Mitsui for RIL’s stalled Haryana SEZ project. These JVs may not add meaningfully to RIL’s valuation given their small scale currently relative to RIL’s mammoth size but suggest that RIL management is likely keen to put its large gross cash flows to work.
Chemical and refining margins remain subdued; may limit upside to FY2011E EPS.
Our SOTP-based fair valuation for RIL stock is Rs950 on FY2011E basis and includes Rs85 contribution from KG D-3, KG D-9 and MN D-4 blocks. There is acute uncertainty about the eventual reserves, if any, in these blocks as recent disclosures from Hardy Oil suggest. Maintain a SELL Rating.
