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The Reliance Industries Ltd (RIL) has surged nearly 6 per cent amid expectations that profitability on petrochem segment may improve after polymer spreads hit decade highs.
The stock hit an intraday high of Rs 2,095. At 2 pm, RIL was up 5.7 per cent at Rs 2,091 on the BSE. According to Jefferies India report, polymer spreads are at decade highs on strong downstream demand. Demand is underpinned by strength in downstream industries, namely automobiles, durables, consumer goods, medical supplies, and packaging.
“RIL’s petchem portfolio spread is tracking 30 per cent ahead of Jefferies’ estimate. Petchem Ebitda could be 50% ahead of Jefferies’ estimate if current spreads sustain in FY22E. This could drive 14 per cent upside to our consolidated Ebitda estimate. Sustained strong performance increases the likelihood of the O2C transaction,” said Jefferies India in its report. The brokerage firm has maintained a buy rating on the stock and increased its target price by 30 per cent to Rs 2,580 a share.
“At the current stock price, valuing the energy business at long-term average multiples, we are left with Rs 1,150/share as imputed value of RIL’s stake in Jio and retail. This is in line with the valuation offered by private equity funds that bought stakes in Jio and Retail in Q1FY21. In our view, sustained strong petrochemical performance improves the likelihood of O2C stake sale in FY22,” the Jefferies report added.
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