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Reliance Industries Ltd Overweight
RELI.BO, RIL IN
Gas production to ramp up to 67mmscmd from April per regulator
• Gas output to rise to 67mmscmd in April The Directorate General of
Hydrocarbons (DGH) announced that it expected RIL to ramp up
production from the KG-D6 field to 67mmscmd in April (from
53mmcmd) currently, citing plans submitted to the regulator.
• Ramp up dependent on additional wells: The regulator stated that the
ramp up was envisaged after the completion of 4 additional wells – 2 of
which are drilled, but not connected, with two more to be drilled.
• Positive development: We factor in a full year average production of
67.5mmscmd for FY12 – a ramp up to 67 from April 11 would be a
positive development and validates our earnings expectations for FY12E,
and also stems potential earnings downgrades due to lack of visibility on
gas ramp up.
• No confirmation from the company: The company is yet to confirm
this development - the DGH had earlier maintained that RIL would
resume producing gas at the rate of 60mmscmd in March-April, which
was also not confirmed by the management.
• Newsflow continues to affect stock: The deal with BP has provided the
market with a valuation benchmark for the E&P business. However, we
think newsflow relating to the ramp-up of production will continue to
impact the stock, particularly allaying concerns over sustainability of
high production levels.
• Refining remains robust: Benchmark regional GRMs have averaged
$6.25/bbl since January (vs. $4.55/bl in the December quarter).
Diesel remains the key driver for crude demand, and as refiners adjust
their product slates diesel spreads are likely to remain elevated. Refinery
maintenance runs are likely to increase demand for lighter crudes – with
disruptions to Libyan supply, light-heavy crude differentials are likely to
widen, benefiting complex refiners such as RIL.
• Re-iterate Overweight: We re-iterate our Overweight rating on RIL,
with a Dec-11 price target of Rs1240. Our PT is based on 12.5x FY12E
earnings (a slight premium to historical averages due to improving
earnings mix). Key risks to our view are a weak global environment
leading to lower than expected refining and petrochemical margins, and
slower than expected gas production ramp-up.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries Ltd Overweight
RELI.BO, RIL IN
Gas production to ramp up to 67mmscmd from April per regulator
• Gas output to rise to 67mmscmd in April The Directorate General of
Hydrocarbons (DGH) announced that it expected RIL to ramp up
production from the KG-D6 field to 67mmscmd in April (from
53mmcmd) currently, citing plans submitted to the regulator.
• Ramp up dependent on additional wells: The regulator stated that the
ramp up was envisaged after the completion of 4 additional wells – 2 of
which are drilled, but not connected, with two more to be drilled.
• Positive development: We factor in a full year average production of
67.5mmscmd for FY12 – a ramp up to 67 from April 11 would be a
positive development and validates our earnings expectations for FY12E,
and also stems potential earnings downgrades due to lack of visibility on
gas ramp up.
• No confirmation from the company: The company is yet to confirm
this development - the DGH had earlier maintained that RIL would
resume producing gas at the rate of 60mmscmd in March-April, which
was also not confirmed by the management.
• Newsflow continues to affect stock: The deal with BP has provided the
market with a valuation benchmark for the E&P business. However, we
think newsflow relating to the ramp-up of production will continue to
impact the stock, particularly allaying concerns over sustainability of
high production levels.
• Refining remains robust: Benchmark regional GRMs have averaged
$6.25/bbl since January (vs. $4.55/bl in the December quarter).
Diesel remains the key driver for crude demand, and as refiners adjust
their product slates diesel spreads are likely to remain elevated. Refinery
maintenance runs are likely to increase demand for lighter crudes – with
disruptions to Libyan supply, light-heavy crude differentials are likely to
widen, benefiting complex refiners such as RIL.
• Re-iterate Overweight: We re-iterate our Overweight rating on RIL,
with a Dec-11 price target of Rs1240. Our PT is based on 12.5x FY12E
earnings (a slight premium to historical averages due to improving
earnings mix). Key risks to our view are a weak global environment
leading to lower than expected refining and petrochemical margins, and
slower than expected gas production ramp-up.
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