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Citi Upgrades Reliance and Ups Target Price

June 13, 2007

In a significant investment update, Citigroup analyst, Rahul singh and Saurabh Handa have upgraded Reliance Industries Ltd to Buy/Low Risk from Hold/Low Risk with a new Target price of Rs 2,005 from Rs 1,450.

They cite the following reasons for the change in Rating. Exploration success leading to switch to traditional multiples for the E&P business. Sustained refining cycle leading to core earnings upgrade (17-19% for FY08-09E) and higher contribution from RPL.

In absence of new refineries in the Middle East, due to cost inflation, which bodes well for RIL’s margins in FY08-09E. Besides, RIL’s differentials over benchmarks have expanded to US$5-8/bbl over the past five quarters, the primary driver of earnings upgrade.

The Sum of Parts Valuation of Reliance Industries Ltd is as follows.

IPCL Rs 29
Reliance Petroleum Rs 243
E&P Assets Rs 631
Organised Retail Rs 125
Total value of investments & other assets Rs 1,027
EV of businesses Rs 826
Net Debt adjusted for key investments Rs (934)
Value of Treasury stock Rs 245

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