Citi says RIL GRMs to gain from spreads over and above Singapore benchmark GRMs

MUMBAI: Brokerage Citi has said that complex refiners like Reliance Industries could benefit from higher light-heavy crude spreads, lower Brent-Dubai spreads, and official selling price cuts, which do not get captured in the Singapore benchmark.

After being choppy for five months, ranging between $3-5 a barrel, Singapore gross refining margins have rebounded to $6.1 month-to-date.

“While the refinery off-gas cracker project & petcoke gasifier have been deferred by 1-3 months, the paraxylene expansion appears on course for being commissioned shortly, with contribution to commence from third quarter. Assuming GRMs remain steady through year-end as is our view, third quarter could shape up to be a much better quarter than was being earlier feared,” Citi said in a report Monday.

Citi has reiterated its ‘buy’ rating on shares of Reliance Industries, with a price target of Rs 1,235. Shares of the company closed at Rs 1,082.35 on Monday at the Bombay Stock Exchange, up 0.6% from previous close.

“We forecast RIL's FY16-19 consolidated EBITDA (including Jio) growing at a 15% CAGR vs -1% over FY11-15, with our forecasts for the core expansions fairly conservative. Valuations remain attractive, with the stock trading at 7.0x EV/EBITDA & 5% FCF yield on FY19E (including Jio losses),”Citi said.