Citi downgrades Reliance Industries to ‘neutral’; prefers Cairn India

NEW DELHI: The near-term earnings outlook is subdued for Reliance Industries and volume led growth is likely to come in only by FY16E, Citi Research said in a note on Thursday.

The research firm has downgraded the stock to ‘neutral’ from ‘buy’, but increased its target price to Rs 874 from Rs 810 earlier.

Citi is of the view that RIL is currently pricing-in most of the recent good news on E&P and refining fronts – the recent strength in refining margins could be short-lived.

“Petchem demand trends continue to remain muted and a pick-up may be unlikely before CY13. Given the circumstances and the recent strength in the stock, valuations seem full at 11x FY13 P/E and 1.3x P/B,” Citi said in a report.

Further upside in the stock will be more back-ended as trickling of govt’s approval will ensure near-term bottom rather than a meaningful up-tick in production volumes in the foreseeable future.

Citi prefers Cairn India Ltd to RIL, citing long term visible cash flows from its existing resource base, the value of which cannot be captured using traditional near-term earnings multiples.

The research firm is of the view that the stock would partially factor-in a combination of long-term fundamentals and near-term momentum in the underlying crude prices. Citi puts a target of Rs 377 on Cairn India.