Buy Reliance Industries: Citigroup

Citigroup upgrades Reliance Industries’ rating to RsBuy’, while maintaining the target price and estimates. After a 15% YTD underperformance versus the market, Citigroup believes the unexciting refining/petchem outlook is largely priced in and reflected in RIL’s valuations that now stand at a 3-year low relative to the Sensex. However, structural changes in the rapidly developing Indian gas market could provide the trigger for stock performance from a 6-9 month perspective.

With rising E&P costs and demand for higher prices to exploit new/marginal fields, there exists a case for the benchmark to move higher. Given the government’s recent moves, Citigroup believes any willingness on its part to implement higher prices for incremental KG production (possibly over the next six-nine months) could lead to reserve value enhancements and potential earnings upsides (about 3-5%) for RIL, driving stock performance.

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