Reliance Industries (CMP: `1,093/ TP: `1,260/ Upside: 15%): Angel Broking Top Pick

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Reliance Industries (CMP: `1,093/ TP: `1,260/ Upside: 15%)
􀂄 RIL’s stock price has borne the brunt of negative news flows on account of slower
ramp-up of KG Basin gas, subdued refining and petrochemical margins and
concerns over the redeployment of the cash flows. However, we believe that the
current price has discounted the worst case scenario and there is potential upside
for the stock from the current levels.


􀂄 We expect RIL’s profitability to register 34% CAGR over FY2010-12E driven by
improvement in refining margins coupled with ramp up of oil and gas production
at the KG Basin. Moreover, increase in the share of E&P in the profit matrix will in
turn reduce exposure to cyclical segments.

􀂄 We expect the company's foray in the newer ventures (such as shale gas,
Broadband and power) along with discovery and monetisation of its upstream
portfolio to keep it on high-growth orbit going ahead. Moreover, the same is also
likely to resolve the concerns over the redeployment of the cash flows. On the
valuation front, the stock is relatively under-valued trading at 1.9x FY2012E P/BV.
􀂄 Moreover, RIL is trading at ~30% discount to Sensex in terms of FY2012E P/BV,
even though estimated RoIC for FY2012E continues to be as high as 18.0%.
Hence, we maintain a Buy on RIL, with a Target Price of Rs1,260, translating into
an upside of 15% from current levels.