RIL: 2QFY11 in line; KG-D6 production to remain flat YoY over FY12::IIFL

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2QFY11 in line; KG-D6 production to remain flat YoY over FY12
RIL’s reported PAT of Rs49.2bn was marginally ahead of our estimates. Expected decline in upstream
EBIT was compensated adequately by a refining margin increase and strong showing in the domestic
chemicals segment. The company clarified that FY12’s planned crude and gas production from KG-D6
are same as current levels, with results of the reservoir behaviour study to be known by end-CY11. We
have cut our FY12 production estimates from KG-D6 and correspondingly cut our EPS estimates.
Refining margins improved by US$0.6/bbl QoQ and look set to improve over 2HFY11ii. We do not
share management’s buoyancy on improvement in petchem margins, owing to large new capacities
coming online. We retain ADD.

Management’s FY12 KG-D6 production plan flat over FY11: Management clarified STOIIP for KG-D6
remains unchanged, but faster production ramp up could result in lower recovery. With result of the
reservoir behaviour study to be known only by end-CY11, the company’s planned production from KG-D6 in
FY12 is 60mmscmd of gas and 30kbpd of crude. We cut our FY12ii EPS to Rs66.5, in line with lower KG-D6
production. Key to watch out for is the exploratory well scheduled to be drilled in KG-D9 in December 2010.
Refining margins improve in line with Singapore benchmark: GRMs improved by US$0.6/bbl QoQ to
US$7.9/bbl, in line with the regional benchmark. We expect GRMs to improve on falling inventories in the US
supporting gasoline spreads and strong industrial demand in Asia Pacific supporting fuel oil spreads over
2HFY11ii (October 2010 US Gulf Coast GRM up 5% MoM; Singapore benchmark up 16% MoM).
Chemicals, polyester and refining remain strong; petchem to be under pressure on capacity
additions: The petchem segment’s EBIT grew 7% QoQ (buoyed by chemicals and polyester) and the refining
segment grew by 8% QoQ, compensating for 11% QoQ decline in E&P EBIT. Chemicals’ contribution to petchem
EBIT has doubled to 20% over FY09-11. Polyester prices could continue to improve on runaway cotton prices.