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UBS Investment Research
Reliance Industries
Lower FY11 EPSe on prolonged shutdown
Lower FY11 refining and petchem EBIT estimate
We cut our FY11 est. EPS by 5.68% on longer than expected shutdown of the
FCCU (Fluidised Catalytic Cracking Unit) which will impact 4Q refining margins.
FCCU converts heavy oil into the pricier gasoline/LPG and we earlier expected a
three week vs. the six week maintenance/inspection shutdown. Additionally,
despite rising margins in the polyester chain and higher prices internationally, we
believe there is some resistance in the domestic market on hiking prices so rapidly.
Reliance’s GRM may only improve modestly QoQ
Despite higher Singapore Reuters margins (US$5.5/bbl in 3Q to US$7.3/bbl in
4Q), partly driven by closure of capacity in Japan, we expect Reliance’s GRM to
improve only modestly in 4Q11 to US$9.7/bbl vs US$9.0/bbl in 3Q due to poorer
product mix on prolonged FCCU shutdown which reduced the gasoline yield.
Rollover to FY13 EBITDA
We value the refining & petchem. business on 7x fwd EV/EBITDA. We recently
rolled over to FY13 from FY12 EBITDA and hence raised our TP to Rs1,115 from
Rs1,050. We assume a peak production of 60mmscmd from KG-D6 in FY13 and
beyond vs 50 mmscmd currently. And a price increase to US$ 6.3/mmbtu in FY15.
Valuation: Limited growth prospects till FY14
We maintain a Neutral rating on RIL as we see limited growth catalysts for the
next 2 years as 1) we expect flat gas volumes; and 2) we expect modest
improvement in petrochemicals and refining margins which constitute a third of
the EBITDA each. The volume expansion in petrochemicals will be reflected only
in FY14.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Industries
Lower FY11 EPSe on prolonged shutdown
Lower FY11 refining and petchem EBIT estimate
We cut our FY11 est. EPS by 5.68% on longer than expected shutdown of the
FCCU (Fluidised Catalytic Cracking Unit) which will impact 4Q refining margins.
FCCU converts heavy oil into the pricier gasoline/LPG and we earlier expected a
three week vs. the six week maintenance/inspection shutdown. Additionally,
despite rising margins in the polyester chain and higher prices internationally, we
believe there is some resistance in the domestic market on hiking prices so rapidly.
Reliance’s GRM may only improve modestly QoQ
Despite higher Singapore Reuters margins (US$5.5/bbl in 3Q to US$7.3/bbl in
4Q), partly driven by closure of capacity in Japan, we expect Reliance’s GRM to
improve only modestly in 4Q11 to US$9.7/bbl vs US$9.0/bbl in 3Q due to poorer
product mix on prolonged FCCU shutdown which reduced the gasoline yield.
Rollover to FY13 EBITDA
We value the refining & petchem. business on 7x fwd EV/EBITDA. We recently
rolled over to FY13 from FY12 EBITDA and hence raised our TP to Rs1,115 from
Rs1,050. We assume a peak production of 60mmscmd from KG-D6 in FY13 and
beyond vs 50 mmscmd currently. And a price increase to US$ 6.3/mmbtu in FY15.
Valuation: Limited growth prospects till FY14
We maintain a Neutral rating on RIL as we see limited growth catalysts for the
next 2 years as 1) we expect flat gas volumes; and 2) we expect modest
improvement in petrochemicals and refining margins which constitute a third of
the EBITDA each. The volume expansion in petrochemicals will be reflected only
in FY14.
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