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Reliance Industries
F2Q11: E&P disappoints;
Petrochemicals shines
Quick Comment: Reliance reported F2Q11 EBITDA
3% below our expectation at Rs~94bn; up 30% YoY and
0.6% QoQ. However, due to lower depreciation (down
3% QoQ), PAT was in line with our expectation of
Rs49bn, up 1.5% QoQ and 27.8% YoY
E&P’s dismal performance due to lower oil
production: RIL produced ~58 mmscmd of gas and
22.7kbpd (our expectation was 30kbpd) of oil from the
KG-D6 field in F2Q11. E&P EBIT declined 11% QoQ but
was up 39% YoY. We expected crude oil production to
be higher and hence estimated 13% higher EBIT. RIL’s
reservoir team is focusing on maximizing productivity of
both oil and gas production over its life before they ramp
up gas production to 80 mmscmd and oil production to
40kb/d. However, the timeframe for this exercise is
unknown and clarity is expected only after 2-3 quarters.
We have assumed gas production of ~70mmscmd and
oil production of 30kb/d for rest of the year based on RIL
ramping up to 80mmscmd in CY-1Q11.
Petrochemical EBIT grew by 7% QoQ, 19% higher
than our expectation. Volumes in Petrochemical
divisions grew by 5% QoQ; all plants ran at full capacity.
Refining EBIT grew by ~8% QoQ. Gross refining
margins (GRMs) stood at US$7.9/bbl, broadly in line
with our estimates, implying a spread of US$3.6/bbl.
Singapore complex was up 14% QoQ, and ~34% YoY.
During the quarter, RIL processed ~70kb/d of Mangala
crude and consumed ~5-6 mmscmd of KG D6 gas.
What does this mean for our earnings? Based on
F2Q11 results, we see 4-5% downside to our overall
EBITDA estimates, mainly driven by downside of 9%
from the E&P division, partially offset by modest upside
of 4-5% in the Petchem division. We currently maintain
our forecasts and await further discussion with
management. However, for the E&P business we
highlight that a 10-mmscmd decrease in gas volumes
would lead to about a 6.5% decrease in earnings
assumptions and vice versa.
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