Reliance Industries is likely to face headwinds in refining and petrochemicals which may hit the company in FY13 or even longer, Bank of America Merill Lynch has said.
However, the company is likely to see an improvement in two-three years, it said.
“Our concern is that global economic downturn may hit GRM (gross refining margin) and petrochemical margins of RIL. Thus RIL’s earnings outlook may deteriorate in FY13. Weakness in refining and petrochemicals was already visible in 2H FY12,” it said in a pre-earnings note.
The improvement in outlook is likely if GRM from coke gasification rises, fundamentals better, gas price is increased, petrochemical capacity is expanded and gas output recovers. Reuters
BofA sees a 24 percent year-on-year fall in RIL’s profit in April-June, and 14 percent year on year decline in annualised earnings per share during the quarter.
The country’s largest private sector conglomerate is announcing its earnings on July 20.
The improvement in outlook is likely if GRM from coke gasification rises, fundamentals better, gas price is increased, petrochemical capacity is expanded and gas output recovers, it said.
“RIL’s share price may jump 69 percent to Rs1,212 in that case. However, we think the risk is that RIL’s share price could correct by 18 percent from current level of Rs 719 to Rs 586 (bear case fair value) hit by 11 percent YoY decline in FY13 EPS,” the brokerage said.
It, however, expects the share buyback programme to support the stock until the outlook gradually improves.
Shares of Reliance Industries were at Rs 721, up 0.3 percent from Friday.
