RIL's Target Stock Price is Rs.650

Recently I came across news about stock report on RIL from Investment banking firm Morgan Stanley. Morgan Stanley has revised its target stock price for Reliance Industries from Rs. 921 to Rs.650. Investment banking firm has sighted fall in RIL’s gross refining margin and production volume as primary causes.
As per Morgan Stanley, the gross refining margins for RIL were at peak in 2011 due to shut downs in Japan and low production volumes in China. They are expecting that Japan will ramp up its production in 2012 which was devastated due to tsunami in 2011. Also, China and India as well are adding up new refining capacities in 2012 to increase production. This could push margins lower.

RIL’s Exploration and Production unit had produced 80 mmscmd in Dec.09 against 40 mmscmd today. It’s a fall of 50% in production. The world is fearful of European debt crisis which has potential to slow down world economies thereby reducing demand for fuel and that would lead to drop in fuel prices. Also, RIL has sold 30% stake in its exploration and production business to BP. So revenues would be lesser from this unit in RIL’s balance sheet for next financial year.

RIL have huge pile of cash which it is not using for expansion of it’s core refining business but will be used to establish Reliance Industries as a big player in other sectors such as Retail, SEZ, Telecom, Financial services, Hotels, Media and Processed Food. As per Morgan Stanley analysts, this move will make Reliance Industries a conglomerate to which, financial markets apply some discount when it comes to it’s share price.

Read more: RIL - A giant seating on huge cash

Establishing these other businesses in Retail, telecom and other domains mentioned above will take time to bare fruits in terms of profits for Reliance Industries.

Considering all above reasons, Morgan Stanley stock research analysts have evaluated the RIL stock and has reduced the target stock price to Rs. 650.

In my opinion, long term investors should consider RIL a good stock to buy with intrinsic value and growth at discounted stock price and wait for the investment to bear the fruits as part of long term investment portfolio. One should definitely buy stocks of RIL if it comes around target stock price given above (Rs.650) by investment banking firm.