Driven by a sharp $1.6 a barrel sequential expansion in gross refining margins (GRM), Reliance Industries is expected to post a 21% growth in its net profit to Rs 5,400 crore, says a CLSA report. This would also be the first time in last five years when the quarterly run-rate clearly surpasses annual consensus profit estimate.
CLSA believes this signals benign expectations and possible culmination of five year consensus EPS (earning per share) downgrade cycle. The broking firm recommends investors to cut underweight ratings on Reliance as it believes the downgrade cycle for the company is over and maintain an 'Outperform' rating with a target price of Rs 850.
The report says that the valuations are near historical averages after a 40 percentage point underperformance in last five years and the downside is also protected from buyback. The upstream news flow too is likely to turn positive and there are expectations of earnings before interest tax depreciation and amortisation (EBIDTA) doubling in next five years after three years of decline.
Enam also expects strong GRMs of $9.3 per barrel to offset the 15% quarter on quarter decline in D6 gas. The broking firm believes Reliance will post a profit of Rs 5,360 crore.
The company is expected to announce its results on October 15, 2012.
