01 November 2010
Reliance Ind -Refining, petchem outlook improving; BUY:: Religare
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Reliance Industries Ltd
Refining, petchem outlook improving; Maintain BUY
Reliance Industries’ (RIL) Q2FY11 PAT, at Rs 49.2bn (+1.5%QoQ,
+27.8%YoY), was in line with our estimates (Rs 49.3bn) and marginally above
the consensus (Rs 48.9bn). PAT growth was flattish QoQ as a higher petchem
and refining EBIT were offset by lower E&P EBIT. Key operating highlights of the
quarter included: a) higher GRMs at US$ 7.9/bbl, b) stable petchem EBIT at
Rs 22bn (+7% QoQ), and c) gas production from KG-D6 at 59mmscmd. We
expect (a) the outlook for refining margins to improve, (b) petchem margins to
stay healthy driven by strong domestic demand for petrochemicals and
polyesters, (c) clarity to emerge on oil and gas production at the KG-D6 block,
and d) likely approval of FDP for KG satellite/other fields and NEC-25 block in
the next 3-4 quarters. Considering the better earnings visibility, we maintain a
BUY on the stock with a target price of Rs 1,210.
E&P—KG D6 gas production to remain at 60mmscmd till Sep ’11: The total gas
production for the quarter stood at 66.3mmscmd (-9% QoQ), 59mmscmd being
from KG-D6 and Crude production stood at 29kbopd (-49% QoQ) due to an
unplanned shutdown at the Panna-Mukta field on 20 July ’10; production has
resumed from 25 Oct ’10. RIL has guided that gas production from KG-D6 would
remain at 60mmscmd at least till Sep ’11 and higher production is likely only
after the reservoir performance is analysed. Similarly, to optimise the crude/gas
production mix at the block, oil production is unlikely to be raised beyond
30kbopd till June ’10.
Refining—GRMs show signs of improvement: RIL’s gross refining margin for
Q2FY11 stood at US$ 7.9/bbl (+8% QoQ, +32%YoY) backed by an improving
gasoil(HSD) demand in Asia. RIL’s premium over the Singapore Complex GRM
remained stable at US$ 3.6/bbl on a QoQ basis but increased sharply by 23% on
a YoY basis, primarily due to an improved heavy-light crude differential.
Petchem—Margins to improve: RIL’s polymer/chemicals margins benefited from
a) strong domestic demand (up 10% YoY for H1FY11), b) higher utilisation rates
arising from limited domestic capacity additions in the last one year and c)
higher contribution from the chemicals segment. We expect polyester margins to
improve further on account of a) higher cotton prices leading to increase in usage
of polyester as a substitute, b) strong domestic demand (up 17% YoY for
H1FY11) and c) lower competitive edge of Chinese products.
Maintain BUY with a target price of Rs 1,210: In view of a strong performance
and robust refining &petchem outlook, we maintain our BUY rating on the stock
with a SOTP-based target price of Rs 1,210.