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COMPANY UPDATE
Reliance Industries (RELI.BO)
Buy Equity Research
In line 3Q results; improving cyclicals setting up a promising 4Q
What's changed
Reliance Industries’ (RIL) 3QFY11 PAT of Rs51.4bn was up 28% yoy, in line
with our expectations, but slightly below Bloomberg consensus of
Rs52.1bn. Cash profit of Rs87bn was up 22% yoy. EBITDA of Rs95.4bn was
up 22% yoy and in-line with our estimate as better-than-expected
petrochem results offset slightly weaker-than-expected refining. While
refining margin of US$9/bbl (including shutdown costs of US$0.2/bbl) was
in line with our estimate, we had assumed a lower throughput due to the
shutdown in the quarter. Polyester chain did better than our estimates and
E&P results were broadly in-line.
Implications
We anticipate a strong 4Q for RIL given an improving outlook for middle
distillate cracks and robust polyester margins. We also expect RIL to gain
from potential widening light-heavy differential as oil demand further
recovers. We also believe the ethylene cycle will bottom out in 2HCY11
and boost RIL’s FY12E performance. Although management did not
provide details on the E&P side, two key takeaways included: 1) near-term
D-6 volumes would be close to 60 mmscmd, implying stable production;
and 2) RIL is not concerned about D-6 gas reserves as of now. RIL stated
that it is in discussions with the government on broad E&P strategies
across its blocks, including capex, costs, and, in our view, gas prices.
Valuation
We maintain our CL-Buy on RIL with a SOTP-based 12-month price target
of Rs1,250, implying 27% upside potential. We see compelling risk-reward
at current levels as we estimate the stock implies D-6 volumes of 55-60
mscmd for the life of the block with no exploration upside, despite many
discoveries outside D-6. Although we currently assume flat volume growth
in FY12E, however, we are about 10% ahead of consensus due to refining.
Key risks
1) Delay in ethylene recovery; 2) expensive acquisitions; 3) weak refining.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
COMPANY UPDATE
Reliance Industries (RELI.BO)
Buy Equity Research
In line 3Q results; improving cyclicals setting up a promising 4Q
What's changed
Reliance Industries’ (RIL) 3QFY11 PAT of Rs51.4bn was up 28% yoy, in line
with our expectations, but slightly below Bloomberg consensus of
Rs52.1bn. Cash profit of Rs87bn was up 22% yoy. EBITDA of Rs95.4bn was
up 22% yoy and in-line with our estimate as better-than-expected
petrochem results offset slightly weaker-than-expected refining. While
refining margin of US$9/bbl (including shutdown costs of US$0.2/bbl) was
in line with our estimate, we had assumed a lower throughput due to the
shutdown in the quarter. Polyester chain did better than our estimates and
E&P results were broadly in-line.
Implications
We anticipate a strong 4Q for RIL given an improving outlook for middle
distillate cracks and robust polyester margins. We also expect RIL to gain
from potential widening light-heavy differential as oil demand further
recovers. We also believe the ethylene cycle will bottom out in 2HCY11
and boost RIL’s FY12E performance. Although management did not
provide details on the E&P side, two key takeaways included: 1) near-term
D-6 volumes would be close to 60 mmscmd, implying stable production;
and 2) RIL is not concerned about D-6 gas reserves as of now. RIL stated
that it is in discussions with the government on broad E&P strategies
across its blocks, including capex, costs, and, in our view, gas prices.
Valuation
We maintain our CL-Buy on RIL with a SOTP-based 12-month price target
of Rs1,250, implying 27% upside potential. We see compelling risk-reward
at current levels as we estimate the stock implies D-6 volumes of 55-60
mscmd for the life of the block with no exploration upside, despite many
discoveries outside D-6. Although we currently assume flat volume growth
in FY12E, however, we are about 10% ahead of consensus due to refining.
Key risks
1) Delay in ethylene recovery; 2) expensive acquisitions; 3) weak refining.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
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