Brokerages maintain ‘buy’ on Reliance Industries post results

MUMBAI: Index heavyweight Reliance Industries ( RIL) was down on profit booking in early trade on Monday after reporting its June 2012 quarterly results post market hours on Friday.

The company’s net profit dipped to Rs 4,473 crore, down 21 per cent, against a net profit of Rs 5,661 crore in the same quarter a year ago. However, the net profit was above Street estimates on the back of lower-than-expected effective tax rate and better gross refining margins (GRM).

“Reliance’s 1QFY13 net profit rose 6 per cent QoQ to Rs 44.7 billion and came 5 per cent above our estimates primarily due to lower-than-expected tax rate. EBIT was broadly in line as higher-than-expected refining margins were offset by weaker petchem,” a CLSA report noted.

RIL posted GRM of $ 7.6 per barrel against estimated $ 7 per barrel. Brokerages are bullish on the Reliance Industries and maintain a ‘buy’ recommendation. They expect the stock to outperform in a weak market.

“We have lowered our FY13-15 EPS estimate by 0.1-1.4 per cent as we model lower D6 gas production, but this is partially offset by lower effective tax rate for FY13-14. While we believe that upside for Reliance is capped due to weak near term earnings momentum, its ongoing buyback programme should provide downside support and allow it to outperform in a weak market,” the CLSA report said.

Deutsche Bank has maintained a ‘buy’ rating on the stock with a target price of Rs 840. It is of the view that while catalysts in the near term remain elusive, the ongoing equity buyback and undemanding valuations should provide downside support to the stock.
Edelweiss is positive on the company’s valuations as it feels that current stock price is factoring in extreme negatives in all core segments.

“Key near-term triggers include filing of upstream development plans and revival in refining margins. Closures of refineries in the US and EU will offset capacity additions and support GRMs. Maintain ‘buy’ with a March-13 fair value of Rs 1,006,” the brokerage said in a note post results.

“GRMs were boosted by better product placement – higher sales in Africa/Asia vis-à-vis US/EU, higher reforming margins and usage of much heavier crude in Q1. Petchem EBITDA at Rs 22.4 billion was much lower than Rs 30.6 billion estimate due to weak demand, but RIL has already witnessed improvement in demand from May 1st week,” the note added.

IIFL maintains a ‘market performer’ rating with a revised 9-month price target of Rs 750 per share.

“Going ahead, while refining segment will witness a stable to negative trend, petchem segment will see pressure on spreads in the near term. On the E&P side, regulatory issues have cropped up and contribution from this stream of business is expected to be on the lower side in FY13 resulting in drop in profitability for FY13,” the IIFL report said.
At 10:30 am, the stock was at Rs 719.70, down 0.41 per cent, on the BSE. It touched a high of Rs 725 and a low of Rs 713.15 in trade today.