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An improved outlook for refining and petrochemical margins is being diluted by problems in gas
production and lack of new oil/gas discoveries. However, we believe the former marginally
outweigh the latter and hence raise (and roll forward) our target price to Rs900 (from Rs855).
Upgrade to Hold from Sell.
3QFY11 results 4% below expectations
RIL reported 3QFY11 net profit of Rs51.36bn (up 28% yoy), 4% below our expectations, due
largely to lower-than-expected refining and E&P EBIT (driven by higher costs). Petchem
profitability was in line and net debt was reduced marginally, from Rs389bn to Rs384bn.
Improved outlook for refining and petchems
Higher global GDP growth is driving a rise in refining and petrochemical margins. We had
expected an improvement in refining and so we raise our gross refining margin (GRM) estimates
by only US$0.5/bbl over FY11-13F. But in petrochemicals, the decline in polymer margins has
been lower than our expectations and we now expect them to improve over FY12-13F. Additional
margin upside is evident in polyester and its intermediates, where cotton shortages have taken
some product margins to record levels.
E&P proving a big dampener
We reduce our KG-D6 oil/gas production forecasts due to an unexpected drop in production and
lack of company guidance. We now forecast KG-D6 gas production at 60mmscmd for FY12 and
FY13. Given lack of positive news flow on exploration, we also cut our exploration upside
potential and now value a reserve base of 4.8bn boe (7.6bn boe earlier).
Upgrade to Hold, TP Rs900
Our EPS forecasts are up 5-9% for FY11/12, but down 3% for FY13, and are still 5-24% below
Bloomberg consensus. We roll forward and raise our SOTP-based target price from Rs855 to
Rs900 as the cut in E&P valuation (Rs134/share) is slightly outweighed by the rise in our
valuation for the refining and petchem business. Given the rise in our target price, we upgrade the
stock from Sell to Hold. We believe E&P probably still holds the biggest potential to provide either
positive or negative surprise.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
An improved outlook for refining and petrochemical margins is being diluted by problems in gas
production and lack of new oil/gas discoveries. However, we believe the former marginally
outweigh the latter and hence raise (and roll forward) our target price to Rs900 (from Rs855).
Upgrade to Hold from Sell.
3QFY11 results 4% below expectations
RIL reported 3QFY11 net profit of Rs51.36bn (up 28% yoy), 4% below our expectations, due
largely to lower-than-expected refining and E&P EBIT (driven by higher costs). Petchem
profitability was in line and net debt was reduced marginally, from Rs389bn to Rs384bn.
Higher global GDP growth is driving a rise in refining and petrochemical margins. We had
expected an improvement in refining and so we raise our gross refining margin (GRM) estimates
by only US$0.5/bbl over FY11-13F. But in petrochemicals, the decline in polymer margins has
been lower than our expectations and we now expect them to improve over FY12-13F. Additional
margin upside is evident in polyester and its intermediates, where cotton shortages have taken
some product margins to record levels.
E&P proving a big dampener
We reduce our KG-D6 oil/gas production forecasts due to an unexpected drop in production and
lack of company guidance. We now forecast KG-D6 gas production at 60mmscmd for FY12 and
FY13. Given lack of positive news flow on exploration, we also cut our exploration upside
potential and now value a reserve base of 4.8bn boe (7.6bn boe earlier).
Upgrade to Hold, TP Rs900
Our EPS forecasts are up 5-9% for FY11/12, but down 3% for FY13, and are still 5-24% below
Bloomberg consensus. We roll forward and raise our SOTP-based target price from Rs855 to
Rs900 as the cut in E&P valuation (Rs134/share) is slightly outweighed by the rise in our
valuation for the refining and petchem business. Given the rise in our target price, we upgrade the
stock from Sell to Hold. We believe E&P probably still holds the biggest potential to provide either
positive or negative surprise.
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