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.