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Reliance Downgarded to Reduce by Kotak

November 5, 2008

In a somewhat bold move, Kotak Securitis Analysts have come forward and downgraded Reliance Industries Ltd to “REDUCE” from “ADD” due to earnings risk with cyclical downturn in chemical and refining turning out to be worse than expected. Adding to Ambani’s woes is the sharp contraction in refining and chemical margins in recent weeks.

The report said that implosion in demand, reduced operating rates and ample supply as indicator of weaker-than expected commodity cycle. Further contraction in multiples of RIL’s cyclical commodity businesses given increasing concerns about global GDP growth, which would determine the strength of global commodity prices and margins over the next two years.

According to Kotak’s estimate RIL is expected to report a flat EPS of Rs 100. Based on the Sum of the parts valuation of Refining, Chemicals, Oil and Gas, Retailing and Investments, Kotak has a target price of Rs 1,325 on the stock.

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