Deutsche Bank - Reliance Petroleum

Deutsche Bank has a BUY on Reliance Petroleum and has recommended a BUY on the stock with 12-month target price of Rs 140.

They have valued RPL using a PE of 10.6x on FY09e equivalent earnings, assuming a 10% premium to the DB regional peer group average P/E. The FY09e equivalent EPS is based on the FY10e EPS (INR14.9/shr) discounted at 12%. Their target multiple assumes a 10% premium to regional peers to factor in higher complexity, and ability to produce ultra-low sulphur fuels. RPL also looks attractive on its FY10e FCF yield of 15%. Future valuation drivers include: i) re-rating in refining EV/capacity on the same lines as India’s cement stocks over the last four years; ii) fuel-switching benefits; iii) potential for higher volumes based on RIL’s track record of sweating its assets.