We believe Reliance Industries (RIL) is the 'banyan tree'. Just when it begins to appear that growth would falter, a new offshoot props it up. RIL has successfully followed a strategy of backward integration and adding new businesses to maintain growth.

E&P - the new growth engine:

In RIL's successful strategy of backward integration in its core businesses, exploration and production (E&P) is the next frontier. As its KG-D6 gas comes online in FY09, E&P will soon become the key growth driver, in our view.

Refining - great times here to stay:

RIL's refining margins have lately been scaling record highs. We expect refining margins to remain high, as the global demand for refined products remains robust and not enough capacity is coming online.

Petrochemicals - mixed margin trend:

While margins in RIL's petrochemicals business have declined from the peak in 2QFY07, polymers continue to enjoy higher than historical average prices and margins. In polyesters, the trend of margin contraction was reversed in 1QFY08. However, high naphtha prices would continue to put pressure on overall petrochemical margins.

Retailing - potential value driver:

We believe that organized retailing in India offers huge growth opportunity and RIL would be able to make the most of this opportunity. Its deep pockets would help sustain a relatively long gestation involved in building a pan-India retailing giant. Our base-case SOTP valuation of Rs 2,206 indicates an upside of about 26%. We upgrade our recommendation to Buy.