Sunday, September 19, 2010

>RELIANCE INDUSTRIES LIMITED: Time for a relook, we see 24% upside from current levels

RIL has underperformed the Sensex by 19% since April of this year, which the steepest
underperformance in the stock over the last six years. The under performance has been driven by i) KG D6 production stalling at ~60 mmscmd, ii) uncertainty around refining and petrochemical margins and iii) RIL’s foray into telecom and hotels. We believe however, that the bad news around the stock has been more than priced in and the stock should rally smartly from here, aided particularly by good news on the gas pricing front (overall domestic gas prices rising) and exploration business globally (more shale acquisitions).

Refining and Petrochemical pressures now fully reflected
The cyclical downturn in refining and petrochemical demand, coupled with the simultaneous record increase in capacity worldwide has led to one of the most severe slump in margins for a long time. However we believe that the last few months have shown signs of a substantial turnaround, with Singapore benchmarks rising and the improvement in Arab Heavy Light Spreads. The closures of unviable standalone refineries in Europe should further help the demand supply balance going forward (~1.5 mb/d of capacity shut in over the last few months)

To read the fulll report: RIL