Buy Reliance Industries Ltd. target Rs 1550: Sharekhan

Sharekhan has Buy call on Reliance Industries with a target price of Rs 1550.

The current market price of Reliance Industries Ltd. is 1387.85.

Massive investment plan of Rs 40,000 crore to revive KG basin gas production to 30-35mmscmd by 2020-2022:
Reliance Industries Limited (RIL) and British Petroleum (BP) plans to jointly develop three gas projects (R-Series, Satellite fields and D-55) in the Krishna-Godavari Basin at a total investment of $6billion (Rs 40,000 crore). The companies target total gas production of 30-35mmscmd from the three projects in a phased manner over 2020-2022. The companies would first develop R-Series fields, which are likely to commence production from 2020 with production of 12mmscmd and plans to submit field development plan for other two projects by end-2017. We view revival of investment in upstream business positively but the investment plan would be contingent to upwards revision in domestic gas prices for deep water blocks (currently at $5.56/mmbtu on gross calorific value).

Strategic co-operation now extended to downstream fuel retailing segment:
RIL and BP have also agreed to jointly explore both conventional fuel retailing (transportation and aviation fuel) and unconventional mobility solutions (addressing electrification of vehicles and disruptive mobility trends). The companies would jointly explore options to develop differentiated fuels and advanced low carbon energy solution in India. We highlight here that the companies are yet to provide specific roadmap for their downstream venture.

Outlook:
With $20 billion capex in petrochemical and refining largely completed and nearing the commissioning stage, we expect RIL’s consolidated EBITDA to grow strongly at a 21 per cent CAGR over FY2017-FY2019E. We expect RoGC, Petcoke Gasification and Ethane projects to add $1.7 billion (nearly Rs 11,660 crore assuming Rs/USD rate of Rs67) in EBITDA in FY2019E. Sharekhan maintain its positive view on refining margins over FY2018-19E, as the strong oil demand growth of 1.3mbpd (according to the International Energy Agency estimates) would help reduce excess gasoline and gasoil product inventory in the international markets.