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UBS Investment Research
Reliance Industries
Natural Partner for Natural gas; target Rs1,050
Reliance enters into partnership with JV
We believe BPs expertise in deep water E&P is one of the key reasons for the
partnership because Reliance has been facing technical issues in the KG basin.
Additionally, BP plans import and distribution of gas in India.
BP implied valuation negative for our RIL upstream value
We value Reliance’s upstream business, including the exploration option, at
US$ 26 bn. BP will pay US$ 9bn (7.2 assured + 1.8 contingent) i.e. no premium
for 33% of this. The deal looks EPS neutral for Reliance as interest income will
make up for loss on EBIT, though the earnings quality will deteriorate.
BP’s technical expertise a plus
We believe the deal is long term positive for the Indian gas sector. The deep water
technical capabilities of BP should help in superior management of the reservoir.
We believe the street may view this as a negative for Reliance as the price that BP
is paying is probably below street’s upstream NAV, though in line with our
numbers which we earlier risk adjusted on technical issues.
Valuation: We maintain our Neutral and SOTP based PT of Rs 1050
Lack of clarity on the use of US$10bn (US$ 3bn existing cash + US$ 7.2bn from
the deal; 15% of mkt cap) may remain an overhang on the stock. Although,
payment of a special dividend will be seen as a positive though there is no such
precedent with Reliance. BP trades at 7.1x FY12e PE, about half the forward PE
that Reliance trades on.
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
Statement of Risk
We believe gas volumes from KG-D6 are key drivers of the stock’s performance.
Refining and petrochemical margins are also major drivers of the company’s
earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Industries
Natural Partner for Natural gas; target Rs1,050
Reliance enters into partnership with JV
We believe BPs expertise in deep water E&P is one of the key reasons for the
partnership because Reliance has been facing technical issues in the KG basin.
Additionally, BP plans import and distribution of gas in India.
BP implied valuation negative for our RIL upstream value
We value Reliance’s upstream business, including the exploration option, at
US$ 26 bn. BP will pay US$ 9bn (7.2 assured + 1.8 contingent) i.e. no premium
for 33% of this. The deal looks EPS neutral for Reliance as interest income will
make up for loss on EBIT, though the earnings quality will deteriorate.
BP’s technical expertise a plus
We believe the deal is long term positive for the Indian gas sector. The deep water
technical capabilities of BP should help in superior management of the reservoir.
We believe the street may view this as a negative for Reliance as the price that BP
is paying is probably below street’s upstream NAV, though in line with our
numbers which we earlier risk adjusted on technical issues.
Valuation: We maintain our Neutral and SOTP based PT of Rs 1050
Lack of clarity on the use of US$10bn (US$ 3bn existing cash + US$ 7.2bn from
the deal; 15% of mkt cap) may remain an overhang on the stock. Although,
payment of a special dividend will be seen as a positive though there is no such
precedent with Reliance. BP trades at 7.1x FY12e PE, about half the forward PE
that Reliance trades on.
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
Statement of Risk
We believe gas volumes from KG-D6 are key drivers of the stock’s performance.
Refining and petrochemical margins are also major drivers of the company’s
earnings.
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