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Result Reviews – 2QFY2011
RIL
RIL's 2QFY2011 numbers were in line with our estimates on the top-line and EBITDA
fronts. The company's top line increased by 22.7% yoy to `57,479cr (`46,848cr) primarily
on the back of 25.5% yoy growth in refining revenue to `49,672cr (`39,564cr) and 46.5%
yoy increase in the oil and gas segment's revenue to `4,303cr (`2,937cr). Growth in the
refining segment was driven by the increase in throughput coupled with increased crude oil
prices. The petrochemical segment registered an 8.6% qoq increase in the top line, driven
by higher sales volumes of ethylene, propylene and polypropylene. Crude oil processed
during the quarter was higher by 40.8% yoy to 16.9mn tonnes (12.0mn tonnes). KG-D6
gas production was subdued on a qoq basis, with average production at 58.5mmscmd.
During the quarter, RIL reported GRMs of US $7.9/bbl (US $6.0/bbl), in line with our
expectation of US $8.0/bbl. Benchmark complex Singapore margins, during the quarter,
stood at around US $4.2/bbl. Thus, RIL managed to earn a spread of US $3.7/bbl.
Petrochemical deltas were stable on a sequential basis with PP deltas remaining stable on
the back of sustained demand. Growth in the petrochemical segment's EBIT was on
account of higher production volumes. The oil and gas segment's EBIT margin declined by
153bp qoq to 39.6% (41.2%) due to production shutdown at PMT and lower output at MA
oil fields. Overall, operating profit grew by 30.2% yoy to `9,396cr (`7,217cr), which was
3.5% lower than our estimate. Depreciation during the quarter exceeded our estimate,
spiking 38.9% yoy on account of the additional depreciation of the SEZ refinery and KGbasin
gas facility. Interest expenditure was largely flat qoq at `542cr. Other income at
`672cr declined by 6.9% qoq and came in line with our estimate of `675cr. PAT grew by
27.8% yoy to `4,923cr (`3,852cr), which was in line with our expectation of `5,095cr. The
key rationale for the marginal deviation in profitability from our estimates was lower-thananticipated
production from MA oil fields and the KG basin.
On account of strong growth in profitability over the next couple of years, improvement in
refining margins, positive news flow from the E&P segment and resolution of uncertainties
and concerns associated with redeployment of cash flows, we remain positive on RIL.
Given its valuation of 1.9x FY2012E P/BV, we believe the company is relatively
undervalued at current levels. We maintain a Buy on RIL with a Target Price of `1,260,
translating into an upside of 15.0% from current levels.
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