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Monday, January 21, 2013

RIL Up 10% in Six Sessions, Brokers Raise Price Target


Analysts expect things to get better as RIL is expected to negotiate hard for an increase in gas prices after March 2014


    Reliance Industries, India's largest company by market capitalisation, has surged nearly 10% in the past six trading sessions, capping a gain of 2.35%— . 21.10 — on Monday to close at . 920.05 after hitting an intraday high of . 954.50. 
Leading brokerages have upgraded the stock ever since the company reported better-than-expected results on Friday, with a 24% jump in third quarter net profit, the first after four quarters of declining returns, aided by good earnings from oil refining business. Indeed, the stock was up even before the results were out and rallied over 7% between January 14 and 18, as investors were taking bets on higher earnings. 
"Companies like Reliance have entered into long-term contracts for buying low-grade crude oil with high sulphur content. Refineries are processing low-grade crude oil into high-margin products like petrol, diesel and aviation turbine fuel. The integration of refinery with petrochemical operations is also adding to their margins,'' said Deven Choksey, managing director at KR Choksey. 
Leading foreign brokerages like Macquarie has revised its 12-month price target for Reliance to . 1,100, while Goldman has put a price target of . 1,050 and Credit Suisse . 1,006. 
However, select brokerages have also raised questions over falling gas production in the Krishna-Godavari basin. 
At present, Reliance has two refineries at Jam
nagar with a combined output of 1.24 million barrels of crude per day. The complex refineries have turned more profitable compared with the bottom-of-the barrel refineries as these refiners can process low-grade crude oil into high value-added fuels. 
"The benchmark Brent crude oil prices is trading above $111 per barrel. Companies like RIL are getting a discount of nearly $10 per barrel on low-grade crude oil from international market and that's how it is able to post higher refining margins," said AK Prabhakar, senior vicepresident at Anand Rathi Financial Services. Analysts expect things to get better for Reliance going forward as the company is expected to negotiate hard for an increase in gas prices after March 2014. Besides, the launch of 4G telecom services from the middle of this year could be another big-bang trigger for the stock.



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