Citi downgrades Reliance Industries from 'buy' to 'neutral'

However, the brokerage revises the target price upwards from Rs 818 to Rs 847

In its latest report on Reliance Industries, Citi has downgraded the company from a Buy rating to Neutral. It has, however, revised the target price upwards from Rs 818 to Rs 847.

Following are the reasons why Citi believes Reliance is no longer a Buy:

* The recent stock price rise seems to factor in a sustained pick-up in refining. Recent margin strength has been on account of seasonality and unexpected supply outages.

* In 2013 global net addition of 1.3 million barrel per day is likely to offset demand growth of 0.9 million barrel per day.

* Petrochemical demand trend continues to be weak, especially in China. The rise in recent months has been on account of fall in crude oil prices.

* Asian petrochemical margins have risen on lower naphtha input cost.

* Exploration & Production (E&P) business has seen some recent respite, with KG-D6 partners agreeing on the reserves value and the government starting to give approvals for FY11-13 budgets. However, this good news is probably in the price.

* Meaningful contribution from new projects worth around $20 billion will start contributing only from 2016.

* While buyback of shares provides some support (one-third of the designated amount has been utilised) valuations are not compelling enough.

* Near term earnings outlook is subdued.

* Will be more positive on the stock below Rs 750 levels.