Reliance Industries is likely to double its profits as the company completes its downstream expansion by 2015-16, with government approvals helping it upgrade reserves and raise production and gas price, brokerage CLSA has said.
"A combination of this growth, benign consensus expectations, below average valuations and buyback support makes us believe that the under-weight trade on Reliance is over," said the brokerage.
It increased target price to Rs 850 a share, while maintaining the outperform rating.
Shares of RIL were up 2.6 percent at Rs 787.
Analysing disclosures from RIL's partners, the brokerage expect large reserve upgrades once the government approves integrated development plans for D6 and other blocks over the next 12-18 months. The approvals will also help double gas production to above 60mmscmd by FY17.
"Re-start of exploration, revision of gas price (US$8 from $4.2/mmbtu) and rise in shale gas volumes should keep E&P newsflow positive over next 12 months," the note said.
The company's $12 billion downstream expansion will boost petrochemical capacity by 60 percent and bring much needed volume expansion after a three year hiatus, it said.
"We are particularly enthused by coke gasification plant which promises to add $2.5/bbl to GRM (gross refining margin) and refinery off-gas cracker that will produce ethylene at one of the lowest costs (US$400/t) in the world," it said.
It expects the full commissioning by FY16 to add $3.5bn to FY17 EBITDA.
Despite the weak near-term earning momentum, the brokerage expects the company's EBITDA to double to $13 billion over FY13-17.