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Reliance Industries Ltd.
No downside to D6 reserves but no clarity on gas ramp-up
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
No downside to KG D6 reserves but production may remain
at current level of 54-55mmscmd
RIL reiterated (had also said in Oct 2010 analyst meeting) that there is no
downside to KG D6 recoverable reserves though ramp-up has been delayed. RIL
indicated that more wells would have to be drilled to ramp up production from
current levels of 54-55mmscmd (any declines to 51-52mmscmd are temporary as
wells are being tested). However, more wells can be drilled only after approval for
capex from the regulator.
EBITDA of US$1.0-1.5bn from US shale gas by FY15
RIL estimates its share of gas production from its three US shale gas JVs at 350-
400bcf (10-11.5bcm) in FY15. RIL expects its EBITDA from US shale gas at US$1.0-
1.5bn in FY15 assuming 350-400bcf of gas and US gas price of US$5.5-6/mmbtu.
RIL's capex of US$25-30bn in next 5 years; EBITDA of
US$15bn by FY15
RIL has guided capex at US$10-12bn on petrochemicals, US$10bn (we believe it
could be over US$15bn) on exploration and development of discoveries already
made in India and US shale gas, and US$4.5-4.7bn on telecoms (US$2.8bn
already spent on 4G license and spectrum). RIL also indicated its EBITDA could
rise to US$15bn by FY15 (EBITDA was US$6.4bn in FY10 and we estimate it at
US$8-8.5bn in FY11) with US$5bn each being contributed by refining,
petrochemicals and E&P. RIL expects its two refineries to have double-digit
refining margins (GRM) on a normalized basis. RIL's GRM would have to be
US$11.7/bbl to achieve refining EBITDA of US$5bn (guided by RIL for FY15).
Five main business segments in 5-10 years
RIL expects to be in the following business segments in another 5-10 years: 1)
petrochemicals, 2) refining, 3) E&P, 4) retail, and 5) telecoms.
Price objective basis & risk
Reliance Inds (XRELF / RLNIY)
Our PO of Rs1,193 (GDR US$50.41) is based on a sum-of-the-parts valuation.
The value of the refining and petrochemical business, oil and gas reserves and
resources, as well as its retail business, is calculated on DCF basis, using a
WACC of 11.8pct. Refining and marketing (Rs431) is 33pct of our PO, E&P
valuation (Rs508) 39pct, petrochemicals (Rs333) 26pct and organized retail
(Rs19) 1pct. Downside risks are (1) 7-year income tax holiday being disallowed
on gas production, which would mean lower cash flow, profit and fair value, (2)
Lower-than-expected oil price. (3) Huge disappointments on the E&P front, as we
have valued exploration upside at Rs114/share, (4) Failure in the retail business
and (5) Decline in refining and petrochemical margins being steeper than
expected. Upside risks are (1) Refining and petrochemical margins being better
than expected, (2) Higher-than-expected oil price, (3) Higher-than-expected
reserve accretion in the next 12-24 months and (4) Large acquisitions that
increase fair value significantly.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries Ltd.
No downside to D6 reserves but no clarity on gas ramp-up
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
No downside to KG D6 reserves but production may remain
at current level of 54-55mmscmd
RIL reiterated (had also said in Oct 2010 analyst meeting) that there is no
downside to KG D6 recoverable reserves though ramp-up has been delayed. RIL
indicated that more wells would have to be drilled to ramp up production from
current levels of 54-55mmscmd (any declines to 51-52mmscmd are temporary as
wells are being tested). However, more wells can be drilled only after approval for
capex from the regulator.
EBITDA of US$1.0-1.5bn from US shale gas by FY15
RIL estimates its share of gas production from its three US shale gas JVs at 350-
400bcf (10-11.5bcm) in FY15. RIL expects its EBITDA from US shale gas at US$1.0-
1.5bn in FY15 assuming 350-400bcf of gas and US gas price of US$5.5-6/mmbtu.
RIL's capex of US$25-30bn in next 5 years; EBITDA of
US$15bn by FY15
RIL has guided capex at US$10-12bn on petrochemicals, US$10bn (we believe it
could be over US$15bn) on exploration and development of discoveries already
made in India and US shale gas, and US$4.5-4.7bn on telecoms (US$2.8bn
already spent on 4G license and spectrum). RIL also indicated its EBITDA could
rise to US$15bn by FY15 (EBITDA was US$6.4bn in FY10 and we estimate it at
US$8-8.5bn in FY11) with US$5bn each being contributed by refining,
petrochemicals and E&P. RIL expects its two refineries to have double-digit
refining margins (GRM) on a normalized basis. RIL's GRM would have to be
US$11.7/bbl to achieve refining EBITDA of US$5bn (guided by RIL for FY15).
Five main business segments in 5-10 years
RIL expects to be in the following business segments in another 5-10 years: 1)
petrochemicals, 2) refining, 3) E&P, 4) retail, and 5) telecoms.
Price objective basis & risk
Reliance Inds (XRELF / RLNIY)
Our PO of Rs1,193 (GDR US$50.41) is based on a sum-of-the-parts valuation.
The value of the refining and petrochemical business, oil and gas reserves and
resources, as well as its retail business, is calculated on DCF basis, using a
WACC of 11.8pct. Refining and marketing (Rs431) is 33pct of our PO, E&P
valuation (Rs508) 39pct, petrochemicals (Rs333) 26pct and organized retail
(Rs19) 1pct. Downside risks are (1) 7-year income tax holiday being disallowed
on gas production, which would mean lower cash flow, profit and fair value, (2)
Lower-than-expected oil price. (3) Huge disappointments on the E&P front, as we
have valued exploration upside at Rs114/share, (4) Failure in the retail business
and (5) Decline in refining and petrochemical margins being steeper than
expected. Upside risks are (1) Refining and petrochemical margins being better
than expected, (2) Higher-than-expected oil price, (3) Higher-than-expected
reserve accretion in the next 12-24 months and (4) Large acquisitions that
increase fair value significantly.
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