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Buy Reliance Industries – Deutsche Bank

August 15, 2007

As India celebrates her 60th independence day, Deutsche Bank [DB] equity research has upgraded Reliance Industries from Hold to BUY with a price target of Rs 2130. DB is far more bullish on the prospects RIL’s refining business.

RIL is on the cusp of strong growth in refining and E&P. Timely expansion through its export-oriented refining subsidiary, Reliance Petroleum (RPL), should help RIL capitalize on the capacity crunch and demand for upgraded fuels, which we view as positive for RIL’s refining operating rates and margins.

RIL’s earnings should get a boost from production start-ups in KG D-6 gas and RPL’s new highly complex refinery, which should support higher GRMs. DB expects RIL’s refining business (including RPL) to get re-rated, as did Indian cement stocks over the past 4 years. Potential growth in oil and gas reserves in its large E&P portfolio, and visibility in cash flows from Reliance Retail which is capitalizing on India’s booming consumer-spending theme. Reliance Retail is also positive for RIL’s longterm ratings as it can sustain long-term growth and mitigate the cyclical risk in RIL’s current portfolio.

The Sum of Parts Valuation of Reliance Industries Ltd is as below,
RIL Petchem Rs 441
IPCL Petchem (post merger) Rs 126
RIL Refining Rs 651
RPL Refining Rs 296
KG D6 (based on DCF) Rs 161
Miscellaneous E&P portfolio Rs 79
Reliance Retail Rs 108
Miscellaneous [Less Debt etc]

Dalal Street Analyst Note:
It is never too late to BUY Reliance. Keep adding in small quantities as and when you get an opportunity. Here is an earlier coverage of Reliance Industries by Goldman Sachs.

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