Goldman : RIL Potential Of Becoming A 100bn Stock
Filed Under: Business | Posted: 08/17/2012 at 5:18AM
Comments | Region: India
Goldman Sachs in its report stated that Reliance Industries Limited (RIL) is potential of becoming a USD 100- billion stock by fiscal 2017 from the present market capitalization of around USD 47- billion. He perceives that this conglomerate can grow by leaps and bounds in the forthcoming years. Streamlining certain activities i.e. focusing on its core business, getting the green signal from the government on investments and gas prices and giving back, some of its surplus cash reserves in the form of dividends will help RIL achieve this feat.
For this Mukesh Ambani led conglomerate to touch the 100 billion-market cap, it must keep a check on the overseas inorganic growth to its core business segments and zoom in on synergies and returns. While RIL becoming a 100bn stock may seem demanding and tough, bearing in mind its present muted growth owing to the pressure it witnessed to accelerate its growth in the near term, returns and cyclical weakness; it is possible with some restructuring and modifications in the company. Goldman analysts mentioned to their clients that while their current share price might be discounting imminent concerns, the short-term outlook manifests a potential of upsurge by 17%. The company can move to the top quartile if the management maps out some smart strategies that can double the market cap in the next four years.
Goldman asserted the ‘buy’ rating on RIL and even increased the target price from Rs. 870 to Rs.936 of a few parts that indicates its augmentation in sectors revolving around refining and exploration and production. He also announced that the magnitude, complexity and the pattern that they adhere to produce clean fuels in a cost effective way from heavy acidic crudes trading at substantial discounts to the lighter categories makes it refining assets one of the finest in the world. It also has an advantage of earning higher refining margin and EBITDA per barrel and manages its refinery at high utilization prices in comparison to its counterparts on an international arena even during adverse conditions like sluggish economy and low demand. Besides, RIL has set the ball rolling for increasing its refinery margins and synthetic gas output with its organized pet-coke gasification unit, potentially replacing the exorbitant LNG that the company is employing at present. With respect to E& P business, Goldman mentioned that RIL scores points owing to its composition of the Production-Sharing Contract (PSC) that enables it to offer high returns at minimal finding and developmental costs.