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Sunday, December 25, 2011

Reliance Industries Ltd:-Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Reliance Industries Ltd

Story:Reliance Industries Limited (RIL)’s current price adequately captures the KG-D6 volume concerns and as also company’s spat with the oil regulator on cost recovery from its KG-D6 basin.I have moderated RIL’s KG-D6 volumes to 41mmscmd in FY12 from 47mmscmd earlier and assumed the same volume for FY13E-FY14E period.However, real risk of reserve potential in KG-D6 basin poses concern for the company which I believe has been priced in given the subdued performance of the stock since the beginning of the decline in its output last year. Even if the regulator disallows the reported $1.2bn cost recovered by the RIL, the value destruction from the same comes out at Rs 16/share while the stock has corrected Rs 40/share till date post arbitration notice announced on 28th Nov’11.Since around 60% of RIL’s revenue is export oriented and product prices are market driven denominated in dollar terms, depreciating rupee will be beneficial for the company. In this regard,I worked out exchange rate sensitivity on RIL’s earnings and valuation and found that with every Rs 1 change in exchange rate, my EPS estimate for FY13E and TP changes by Rs 2 and Rs 42 respectively. At current exchange rate of 52, EPS estimate for FY13E comes out to Rs 81 with target price of Rs 1093/share. However, for Apr-Nov’11 period, USDINR exchange rate averaged at 46.45 and I assumed exchange rate of 46 during FY12E-FY14E period. At base case exchange rate of 46, EPS for FY13E stood at Rs 67.At CMP of Rs 740, the stock is trading at P/E and EV/EBITDA of 10.9x and 6.2x FY13E EPS and EBITDA of Rs 65 and Rs 403680mn respectively. The stock’s recent correction was on account of its controversies surrounded to its bejeweled KG-D6 block (falling gas output, capex spends, PSC drilling plans etc).I believe the correction on account of KG-D6 is overdone and at current levels there is limited downside risk in the stock.

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