RIL: Steady 2QFY11, Retain OW with Dec-11 PT of Rs1260:: JPMorgan

Visit http://indiaer.blogspot.com/ for complete details �� ��


Reliance Industries Ltd: Overweight 
RELI.BO, RIL IN
Steady 2QFY11, Retain OW with Dec-11 PT of Rs1260



• Steady 2Q; rolling forward PT basis: RIL’s 2QFY11 earnings of
Rs49.2bn, was marginally ahead of our expectations. A rebound in
refining and continuing strong trends in polyester were the key drivers
for q/q, growth; despite operational issues in E&P (PMT, MA fields).
We adjust our earnings -3%/-4% over FY11/12 and thus raise our PT to
Rs1,260, rolling forward our PT basis to Dec-11.
• Refining and petrochemical rebound will be near term catalysts..:
While we expect refining to stay steady over the medium term, near term
seasonal rebound in margins along with improving outlook for the
petrochem business would drive earnings growth for RIL. RIL
management expects improving refining performance on back of
continuing strong demand growth East of Suez and seasonal
improvement on distillate spreads; Polyester segment will stay strong
over the next 1-1.5 years on high cotton prices, tight PTA markets.
• …no joy on E&P ramp-up for now, but segment stays promising:
D6 gas ramp-up is unlikely before 2HFY12 as 2-4 more wells need to be
drilled/connected to get a better understanding of the reservoir. RIL has
firmed up drilling plans for KGD9 in the current quarter. Drilling in MN
D4 is likely only next year.
• Dec-11 PT of Rs1260, Retain OW: Despite delays in E&P ramp-up, we
expect RIL will grow earnings at a 25%CAGR over FY10-13E. We roll
forward our PT basis to Dec-11, continuing to use 12.5x P/E multiple to
arrive at our new PT of Rs1,260. Further delays in KG D6 ramp-up, a
downturn in refining and petrochemical businesses are risks to our
earnings and view on the stock.