>Reliance(Morgan Stanley)

Conclusion: We reiterate our Overweight rating on
Reliance but lower our target price to Rs1,619 and
reduce our F2009e and F2010e consolidated earnings
by 15% and 13%, respectively, based on the following:

1) delayed assumptions of commercial production of
RPL to April 2009;

2) delay in peak production
assumption of oil and gas from KGD6;

3) lower GRM
estimates and net backs on global GDP cuts; and

4) a stronger dollar forecast based on our revised view on
the INR/USD exchange rate; since we believe the
currency remains over-valued on a real effective
exchange rate.

For F2011 and F2012,
we have actually raised our earnings estimates.
Our target price of Rs 1,619, based on trough historical
multiples of global comps, implies 59% potential upside.
Reliance is net long the dollar: We estimate Reliance
will have a gross profit exposure of US$12 bn to the
dollar in F2010, and for every 1% chg. in the USD vs. the
rupee, its profitability would vary 3.7%. Reliance’s
domestic gas business is also pegged to the dollar, so
the net exposure to the dollar increases in the longer
term. Our global economist believes the Indian currency
remains over-valued on a real effective exchange rate.
The India rupee has depreciated 27% YTD and our team
expects another 10% softening in the next few years.
Valuations look attractive. Reliance has fallen 50% in
the last one month in absolute terms, underperforming
the market by 22%. It trades at 5.4x F2010e earnings, a
33% discount to the market multiple, making valuation
attractive on an absolute and relative basis, compared to
global comps. Key risks: Removal of tax holiday for the
E&P business; a slowdown in global economic growth

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