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BP deal values RIL’s existing reserves at US$24bn and
implied exploration premium of 25% vs our expectation
of 40%
The deal provides downside support to E&P valuation
potentially making it a cleaner play on refining/petchem
RIL’s cash redeployment remains an issue in the
absence of commensurate reinvestment options
Reiterate IN LINE
Values existing reserves at $24bn, exploration premium at
$6bn: The overall value is only slightly lower than our base case
SOTP contribution from E&P at US$33bn (Rs454/share). The deal
envisages US$7.2bn cash inflow to RIL over FY12 (subject to
regulatory approvals) and US$1.8bn of future performance
payment based on successful commercial discoveries. Our
exploration premium of 40% is however higher than that implied in
the deal c25%. The deal covers all the prominent deepwater blocks
in KG, Cauvery and Mahanadi basins.
Cleaner play on refining/petchem now?. While the deal does
little to alter our base case SOTP valuation (US$33bn), it does
provide downside support to the E&P valuation which has been
affected by D6 production decline, slow progress on discovered
blocks and lack of further exploration success. If we mark-tomarket the current refining margins, the implied E&P value at the
current stock price is only US$20bn (~Rs280/sh). While the real
benefit of the tie-up (in terms of addressing the current issues at D6
and accelerating further exploration) will be visible only over next
12-24 months, we do believe the deal valuations (and the resultant
cash inflow) could provide downside support to the stock given the
recent sustained strength in refining/petchem margins.
Cash re-deployment remains a question mark though: RIL's
free cash flows coupled with the inflows from the deal presents a
challenge of finding commensurate re-investment options, in India
and abroad. In the absence of a high dividend payout, we believe
that remains a key issue for any re-rating.
50:50 JV for gas marketing +ve for supplies in medium term:
In the joint briefing, management of the two companies
emphasised on tapping BP's pool of gas resources to supply
gas/LNG to the Indian market, presumably to fill the deficit arising
out of stagnant supply of indigenous gas. We view this as +ve for
gas pipeline companies viz. GAIL (OP, Rs 448).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
BP deal values RIL’s existing reserves at US$24bn and
implied exploration premium of 25% vs our expectation
of 40%
The deal provides downside support to E&P valuation
potentially making it a cleaner play on refining/petchem
RIL’s cash redeployment remains an issue in the
absence of commensurate reinvestment options
Reiterate IN LINE
Values existing reserves at $24bn, exploration premium at
$6bn: The overall value is only slightly lower than our base case
SOTP contribution from E&P at US$33bn (Rs454/share). The deal
envisages US$7.2bn cash inflow to RIL over FY12 (subject to
regulatory approvals) and US$1.8bn of future performance
payment based on successful commercial discoveries. Our
exploration premium of 40% is however higher than that implied in
the deal c25%. The deal covers all the prominent deepwater blocks
in KG, Cauvery and Mahanadi basins.
Cleaner play on refining/petchem now?. While the deal does
little to alter our base case SOTP valuation (US$33bn), it does
provide downside support to the E&P valuation which has been
affected by D6 production decline, slow progress on discovered
blocks and lack of further exploration success. If we mark-tomarket the current refining margins, the implied E&P value at the
current stock price is only US$20bn (~Rs280/sh). While the real
benefit of the tie-up (in terms of addressing the current issues at D6
and accelerating further exploration) will be visible only over next
12-24 months, we do believe the deal valuations (and the resultant
cash inflow) could provide downside support to the stock given the
recent sustained strength in refining/petchem margins.
Cash re-deployment remains a question mark though: RIL's
free cash flows coupled with the inflows from the deal presents a
challenge of finding commensurate re-investment options, in India
and abroad. In the absence of a high dividend payout, we believe
that remains a key issue for any re-rating.
50:50 JV for gas marketing +ve for supplies in medium term:
In the joint briefing, management of the two companies
emphasised on tapping BP's pool of gas resources to supply
gas/LNG to the Indian market, presumably to fill the deficit arising
out of stagnant supply of indigenous gas. We view this as +ve for
gas pipeline companies viz. GAIL (OP, Rs 448).
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