Saturday, September 12, 2009

Buy Reliance Industries

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Considering it has successfully executed its two mega ventures, viz. KG basin gas and the RPL refinery, we expect them to be the key drivers of profitability over the next few years. We remain positive on RIL’s future growth prospects. At current market price of Rs 2060, RIL is currently trading at 16.8x and 12.5x of FY10E and FY11E earnings respectively.

We expect RIL to deliver 30.8% CAGR in earnings over next two years (FY09 – FY11E). Historically the stock trades at an average of 15x its 1 year forward earnings. Considering this our target price for the stock stands at Rs 2,475 (15x of FY11E earnings of Rs 165), providing an upside potential of 20% from current levels. We recommend a Buy on RIL.