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Reliance Industries (RELI.BO)
2Q: Strong Petchem, Refining Help Meet Expectations
In-line quarter — 2Q PAT came in at Rs49.2bn, in-line with estimates. While
GRMs at US$7.9 increased qoq and petchem strengthened, this was partly offset
by lower production at Panna-Mukta (due to shutdown) and KG crude.
Pick-up in refining as expected — GRMs improved to US$7.9 (US$7.3 in 1Q),
reflecting a pick-up in line with S’pore margins. Mgmt expects margins to continue
their upward trend near-term with robust emerging market demand, widening L-H
differentials, and upcoming winter season. Combined refinery throughput
remained at 109%, though 3Q could be lower (c20 days planned shutdown).
Strong petchem performance, expect continued strength — Petchem EBIT was up
7% qoq, recovering lost ground in 1Q driven by robust domestic demand in both
polymers (19% yoy) and polyesters (23% yoy), and sharp increase in contribution
from the chemicals business (c10% of overall segment vs. c5% a year ago). PE
deltas were impacted (albeit to a lesser than expected extent) by new Middle East
capacity, though PP deltas remained stable and polyester deltas were buoyed by
unprecedented rise in cotton prices. Overall volumes were partly impacted by
plant shutdowns, which will recover in 3Q. Mgmt expressed confidence on the
near-term segment outlook, with new global ethylene capacity having been
comfortably absorbed supporting PE profitability, PP demand remaining strong,
and sustained strength in cotton prices (up >100% yoy) boosting polyester deltas.
E&P updates — Mgmt expects KG gas production to stay at ~60 mmscmd for a
few qtrs, as more development wells are drilled and connected (2 drilled in 2Q).
KG oil production is also not expected to exceed 30 kbpd in the near-term. KG-D9
drilling may commence in 4Q, though MN-D4 is likely to take longer. Further,
regulatory issues have resulted in delays in filing of NEC-25 FDP. The company
has 2 deepwater rigs under operation and expects a third rig shortly. With Panna-
Mukta production recovering in Oct, segmental profitability should improve in 3Q.
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