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UBS ups RIL’s price target 16% on higher profit expectations

UBS ups RIL’s price target 16% on higher profit expectations
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First Published: Fri, Aug 24 2007. 01 04 AM IST

Prized feet: Reliance Industries Ltd chairman Mukesh Ambani.
Prized feet: Reliance Industries Ltd chairman Mukesh Ambani.
Updated: Fri, Aug 24 2007. 01 04 AM IST
New Delhi: Reliance Industries Ltd (RIL), owner of the world’s third biggest refinery, had its share-price target raised by global financial services firm UBS AG on the expectation that profit from processing crude oil into fuels will rise.
The 12-month price target was raised to Rs2,340 a share from Rs2,007, UBS analyst Harshad Katkar said in a note to clients on Wednesday.
Prized feet: Reliance Industries Ltd chairman Mukesh Ambani.
The stock recommendation for the Mumbai-based company was kept unchanged at “buy”.
UBS expects profits from making petrol and diesel to rise as capacity expansion fails to keep pace with demand in Asia. RIL may earn $12.9 (Rs529) from processing each barrel of oil into fuels in the year ending 31 March, compared with an earlier forecast of $12.1 (Rs496), the note said.
“Given our expectation for continued growth in Asian refined product demand through 2010, coupled with our moderate outlook for capacity expansion, we think the refined product market should remain relatively tight in Asia through 2010,” Katkar said in the note.
Reliance Petroleum Ltd (RPL), which is building a refinery next to the one owned by parent RIL, may complete the project by September 2008 and start production by December 2008, the note said. RPL’s plant achieved 65% completion as of June, the UBS note said.
RPL is building a 580,000 barrels per day (bpd) refinery adjacent to a 660,000 bpd plant owned by its parent.
Once complete, RIL will own the world’s biggest refinery.
RIL’s shares closed 1.46% lower at Rs1,742.60 on the Bombay Stock Exchange on Thursday. RPL shares also fell 2.24% at Rs106.70.
UBS raised its forecast for earnings for Asian refiners from processing oil by $1.8 a barrel to $6.5 in the year ending 31 March 2008 and by $2.2 a barrel to $5.7 the following year.
The global wealth management company expects construction of about 1.3 million bpd of new refining capacity to get delayed until 2011 from 2010.
This is mostly from projects that were announced and expected in South Korea, Indonesia, India and Pakistan, the note said.
Three plants planned in China for 2009 are yet to be approved and may not be built before 2010, the note said. That may translate into a delay of 460,000 bpd of new capacity until 2010 from 2009, UBS pointed out.
Mukesh Ambani, chairman of RIL, India’s most valuable company, had said on 21 August that said he expects refiners to earn higher profit from processing crude oil into fuels.
“Going by the current demand and supply, the outlook for refining margins is good,” Ambani said. “They will remain strong in the medium term.”
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First Published: Fri, Aug 24 2007. 01 04 AM IST