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MOSL: Morning India (27/February/18): 1. Reliance Industries; 2. KNR Construction; 3. Room Air Conditioner; 4. Automobile; 5. Metals Weekly

MOrning India (27/February/18):

Today’s top research theme
Reliance Industries: Strong core performance to continue; Expect USD11.5/bbl of GRM in FY19-20
** As we had pointed out in our earlier report, Latin Touch, November 2017, structurally poor utilization in Latin America and Africa would keep benchmark gross refining margins (GRMs) strong in the next 2-3 years. RIL should clock GRMs of USD11-12/bbl in FY19-20.

** Petchem margins have also been strong. Though PE prices have been ~USD828/mt in FY18YTD, 5% below the five-year average, PP and PVC prices are 6-25% higher. We expect RIL’s petchem EBITDA to increase by 67% during FY17-20.

** We expect strong free cash flow generation of INR678b during FY18-20 on consolidated basis.

** We value RIL using SOTP. Using 7.5x EV/EBITDA for refining & petchem, DCF for E&P, 0.7x EV/sales for Reliance Retail, and DCF for RJio. We roll over our target price to March 2019. With a revised target price of INR1,111, we reiterate our Buy recommendation for the stock.

Piping hot news
Power plants face coal shortage, says report
** The power sector seems to be facing coal shortage again as 46 coal-fired power plants reported stocks of less than a week, according to official data. According to the daily coal stock report of 113 power plants monitored by Central Electricity Authority (CEA), six plants have coal stocks for zero day and eight plants have stocks of just one day to generate electricity as on February 22, 2018.