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UBS Investment Research
Reliance Industries
Petchem/refinery should drive share price
[EXTRACT]
„ Lower KG-D6 volume means less domestic gas
As Reliance’s KG-D6 gas production has failed to ramp up according to the field
development plan, their industrial customers are looking for alternatives. KG-D6
contributes around 45% of India’s domestic gas production. Lower supply has
impacted the fertiliser, power and other industries that were relying on cheap
domestic gas for their expansion.
„ Higher EBIT contribution from refinery and petrochemical segments
Falling volume from KG-D6 has changed Reliance’s business mix. We expect
higher profitability for its refinery and petrochemical segments and stagnant
volume from KG-D6. We forecast the two segments’ contribution to EBIT will
increase from 69% in FY11 to 79% in FY14.
„ Limited downside risk on upstream business
The stock’s underperformance since 2010 has mainly been driven by declining gas
production at KG-D6. We think there is limited downside risk to the stock at its
current levels; there could be a 3.4% valuation impact if gas production peaks at 45
mmscmd (we assume 60 mmscmd). On the upside, Reliance-BP could use
advanced drilling techniques to better tap the reservoir over the next few years,
despite poor inter-connectivity in the reservoir.
„ Valuation: sum-of-the-parts based price target of Rs1,170 (32% upside)
We value the petrochemical/refinery business at 7x FY13E EBITDA, the
producing fields on net present value (NPV), and the rest of the upstream business
on EV/boe. At 6.1x FY13E EV/EBITDA and 11.0x FY13E EPS, we think
Reliance is attractive compared to its Asian peers.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Industries
Petchem/refinery should drive share price
[EXTRACT]
„ Lower KG-D6 volume means less domestic gas
As Reliance’s KG-D6 gas production has failed to ramp up according to the field
development plan, their industrial customers are looking for alternatives. KG-D6
contributes around 45% of India’s domestic gas production. Lower supply has
impacted the fertiliser, power and other industries that were relying on cheap
domestic gas for their expansion.
„ Higher EBIT contribution from refinery and petrochemical segments
Falling volume from KG-D6 has changed Reliance’s business mix. We expect
higher profitability for its refinery and petrochemical segments and stagnant
volume from KG-D6. We forecast the two segments’ contribution to EBIT will
increase from 69% in FY11 to 79% in FY14.
„ Limited downside risk on upstream business
The stock’s underperformance since 2010 has mainly been driven by declining gas
production at KG-D6. We think there is limited downside risk to the stock at its
current levels; there could be a 3.4% valuation impact if gas production peaks at 45
mmscmd (we assume 60 mmscmd). On the upside, Reliance-BP could use
advanced drilling techniques to better tap the reservoir over the next few years,
despite poor inter-connectivity in the reservoir.
„ Valuation: sum-of-the-parts based price target of Rs1,170 (32% upside)
We value the petrochemical/refinery business at 7x FY13E EBITDA, the
producing fields on net present value (NPV), and the rest of the upstream business
on EV/boe. At 6.1x FY13E EV/EBITDA and 11.0x FY13E EPS, we think
Reliance is attractive compared to its Asian peers.
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