The brokerage said RILs current valuations are not compelling enough even as the company's buyback exercise continues to lend support to prices. RIL is currently pricing in most of the recent good news on the E&P ( exploration & production) and refining fronts.. says Citi in a report dated August 30. However, it increased RILs target price by 4% to R847 on higher gross refining margin (GRM) assumptions for FY13/14 and changes in assumptions related to the E&P and petrochemical businesses.
Citi said that the recent strength in RIL's refining margin could be shortlived as it has been driven by seasonality and unexpected supply outages in Asia. Further, it added that E&P approvals after the government's recent nod for KG-D6 budgets could only help bottom out the output, rather than meaningfully increasing it in the near term. Even the petrochemical demand trends are expected to remain muted with a pickup unlikely before CY13.
Citi also called it premature to price in any meaningful ebitda increase stemming from RIL's new initiatives in the core businesses as it is expected to kick-in in FY16. In CY12, at least 10 brokerages have lowered their rating on RIL. BoFAML, JPMorgan, BNP Paribas, Daiwa Securities, Kotak Institutional Securities, Prabhudas Lilladher, Antique Stock Broking, JM Financial Institutional Securities, Tata Securities and IFCI Financial Services have all reduced their rating.