>Reliance Industries Ltd (JP Morgan)

Embracing a 2H recovery; Raising PT to 2300

• Recovery’s Child… RIL earnings, valuations are leveraged to the global economic recovery. JPM global economics team believes that global data points are tracking a 2H recovery scenario. We raise our FY11 refining margin estimates and align our March-10 PT to reflect higher earnings, risk appetite. Maintain OW.

• …with unique growth visibility: RIL is one few companies in the Asia Energy, Chemicals space with earnings growth visibility. Ramp up in refining) new volumes can compensate US$5/bbl drop in GRMs) and gas volumes will drive 35% earnings CAGR over FY09-11E.

• Is there steam in this rally? Yes, in our view We are raising our Mar-10 PT to Rs2,300, based on raised earnings. We also raise our PE multiple to 11x (from 10x earlier) as earnings visibility, risk appetite will improve further, if recovery pans out in 2H09.

• Green shoots abound… Our global economic team has raised US and Japanese growth forecasts on back of positive datapoints. Demand growth in India is robust, particularly for polymers, and the margin environment is healthy with local petchem premium to import parity. Ramp up in E&P, new refinery revenues are further positives for RIL.

• …but we would look out for the weeds: Apart from global economic risk factors, India elections results in mid-May could bring a fresh round of volatility. If the materials’ restocking is not followed through with end-demand, cyclical stocks could face a further leg down. RIL also faces legal and regulatory risks in gas and petroleum marketing business which could impact earnings and stock.

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