Reliance remains no-moat rated with the global refining business highly fragmented and fiercely competitive.
Refining and petrochemical margins remained at subdued levels as the Asian industry remained well supplied. U.S. shale volume increase was in-line with our estimate of a 40% increase in shale volumes in fiscal 2015. Indian business uptick came from higher output from Panna basin. We now expect retail business to achieve long term operating margins of 4% sooner by 2020 as roll out of higher margin digital and cash and carry stores is ahead of our estimates.
Cost advantage through a low cost feedstock is the key source of competitive advantage for a refiner yet Reliance buys globally traded crude. We increase our fair value estimate to INR 950 per share from INR 908. The increase is driven by roll over to fiscal 2015 and higher long term Henry Hub gas price forecast assumptions. At current price of INR 1,030, we think Reliance is fairly valued.
Refining and petrochemicals are highly commoditized and cyclical industries, as reflected in our high uncertainty rating.
To read the analysis in detail, click here.
