Upgrading to Buy with revised 12M target of INR2130 (+18%)
This note marks the transfer of coverage from David Hurd to S Ramesh. We are
raising our target from INR1,585 to INR2,130 (+18% upside) and upgrading from
Hold to Buy. Unlike the street, we are far more bullish on RIL's core refining
business and assign lower value to E&P and Retail at this stage.
Valuation
Refining re-rating à la cement; E&P monetisation positive for stock; target INR2,130
We value RIL at INR2,130 based on our sum-of-the-parts (SOTP) valuation. This includes KG
D-6 (DCF: INR161/shr), RPL (INR269/shr), Reliance Retail (INR108/shr) and probable upside
from future projects – KG phase II, savings from fuel switching and future reserve accretion.
Future valuation drivers include: a) re-rating in refining on EV/capacity on the same lines as
India's cement stocks over the last 4 years, b) potential growth in oil and gas reserves in its
large E&P portfolio, and c) visibility in cash flows from Reliance Retail which is capitalizing on
India's booming consumer-spending theme. Reliance Retail is also positive for RIL's longterm
ratings as it can sustain long-term growth and mitigate the cyclical risk in RIL's current
portfolio. Other catalysts include value unlocking from a stake sale in E&P blocks like KG D-6
and free cash flow yield of 6% on FY09e.
the note added for full note refer the research house wensite
This note marks the transfer of coverage from David Hurd to S Ramesh. We are
raising our target from INR1,585 to INR2,130 (+18% upside) and upgrading from
Hold to Buy. Unlike the street, we are far more bullish on RIL's core refining
business and assign lower value to E&P and Retail at this stage.
Valuation
Refining re-rating à la cement; E&P monetisation positive for stock; target INR2,130
We value RIL at INR2,130 based on our sum-of-the-parts (SOTP) valuation. This includes KG
D-6 (DCF: INR161/shr), RPL (INR269/shr), Reliance Retail (INR108/shr) and probable upside
from future projects – KG phase II, savings from fuel switching and future reserve accretion.
Future valuation drivers include: a) re-rating in refining on EV/capacity on the same lines as
India's cement stocks over the last 4 years, b) potential growth in oil and gas reserves in its
large E&P portfolio, and c) visibility in cash flows from Reliance Retail which is capitalizing on
India's booming consumer-spending theme. Reliance Retail is also positive for RIL's longterm
ratings as it can sustain long-term growth and mitigate the cyclical risk in RIL's current
portfolio. Other catalysts include value unlocking from a stake sale in E&P blocks like KG D-6
and free cash flow yield of 6% on FY09e.
the note added for full note refer the research house wensite
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