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RIL results strong, but wait for a re-rate, advise analysts

Reliance Industries, India's biggest company by market capitalisation, posted a 24 per cent profit for the quarter ended December 2012 year on year, beating estimates.

Net profit rose to Rs. 5,502 crore on the back of higher refining margins. Refining is the biggest of Reliance Industries' business, accounting for two-thirds of net sales and 40 per cent of the company's operating profit.
 
Shares in RIL closed 1.15 per cent higher at Rs. 900.20 on the National Stock Exchange against a 0.3 per cent gain in the benchmark index Nifty. RIL shares rose 7 per cent for the week against a 1.8 per cent gain in the Sensex on hopes of strong earnings and after multiple brokerage upgrades.
 
Here is what experts said:
 
Prayesh Jain, AVP-Research, IIFL:
 
It (result) seems upbeat across board. Pet-chem margins have also been ahead of expectations. Performance has been very strong.
 
Some points that need to be taken care of - kind of crude being used and the kind of product mix. Both the oil companies - RIL and Essar have seen strong numbers. So I think the numbers that we have seen this quarter should sustain in near term.
 
Verdict on stock: It will open on Monday with a positive bias. But we will wait for rerating.
 
Gaurang Shah, assistant vice president, Geojit BNP Paribas Financial Services:
 
Yes it is quite a huge positive. The expectations were built up. The surprising part is that for frontline or midcap companies, they have been better than Street expectations.
 
For oil and gas business, the problem was that there was a maintenance shut down. For other verticals, numbers are better than expected.
 
On concentration on core business: I think it makes sense, because that's been the core business for RIL. If you concentrate on that, the coming quarters might look better. The way the stock has reacted, this stock was the least preferred stock for frontline investors. Like we have heard, there have been a lot of re-rating. I think that should change the way ahead.
 
On volume drop, KG-D6 production: That (significant drop in volumes) is what the data point tells us. Going ahead, we might hear some noise on gas pricing. I won't be surprised if some kind of decision will be taken. That should boost production. But, this is all over a long-term period. We can't analyse on short-term basis. But sluggish volumes may see uptrend and that should change outlook.
 
Verdict on stock: I think it is little bit too early to shift to overdrive. We will possibly wait for upgrades on price target for RIL. I don't think it would be prudent to go and buy at these levels.
 
Sushil Choksey, director of Rosy Blue Securities:
 
For refining and pet-chem business, the margins have been better. Specifically on GRM, since last quarter, I have been hopeful since RIL has been sourcing better crude which is helping margins.
 
Verdict on stock: Just to take the current result and make a case for 213 is difficult. One needs to know what RIL announces on buy-back claims. EPS is not going to change dramatically. Stock will stabilise between 850 and 950 range. The current liquidity trend that is supporting RIL means that it might go up 2-3 per cent, but that doesn't mean short-term traders should concentrate on RIL.