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1QFY12 results
Reliance’s 1QFY12 net rose 5%QoQ to Rs56.5bn – inline with expectations but
boosted by below Ebitda items. Ebitda was flat QoQ; higher than expected refining
offset weaker petchem. The approval of the BP deal is a welcome step but a
rebound in output may take 2-3 years while output from other discoveries may
take even longer given the slowdown in government approvals. During this time
the overseas shale ventures should gain scale, though, and add 8-10% to Ebitda.
With valuations attractive at a 25% discount to Sensex, we maintain BUY.
1QFY12 net profits up 5% QoQ. Reliance’s 1QFY12 net profits rose 17%YoY/5%QoQ
to Rs56.6bn (Rs17.4/sh) – inline with estimates. Lower than expected depreciation
(petchem, E&P) and interest costs, higher other income (+Rs34bn QoQ cash balance)
and Rs1.37bn in forex gains boosted the bottom-line. Core Ebitda was flat QoQ at
Rs98bn (US$8.8bn annualised), though, as stronger refining offset weaker petchem.
With the SEZ refinery now liable for MAT, effective tax rates also rose 2.5ppt to 22%.
Refining boosted by higher throughput. Refining Ebit rose 28% QoQ – better than
expected led by marginally higher GRMs (US$10.3/bbl) and higher throughput (17mt,
+2%QoQ). While the trend up in GRMs was expected we have been disappointed in the
recent past by Reliance’s inability to capture the strength in benchmark spreads in
realised margins; management indicated soft light-heavy spreads, product mix, higher
solid spread losses, usage of higher cost LNG (after a government order) as reasons.
Weak petchem on higher exports. Petrochem Ebit fell 16%QoQ (much weaker than
expected) on lower polymer and polyester intermediate spreads as also from higher
proportion of lower margin export sales due to a 4-5%YoY fall in domestic demand.
Creditably, though, production volumes rose while inventories remained under control.
Domestic E&P a drag. E&P Ebit also fell 6% QoQ despite higher crude as lower gas
production at PMT, KG-D6 weighed. Declining KG-D6 gas volumes (now ~39mmscmd
in D1-D3) remains the key headwind for Reliance. While the approval of the BP deal
paves the way for greater cooperation in understanding the KG-D6 reservoir issues,
our interactions during the analyst meet indicates that drilling and completions of
additional wells may take 2-3 years implying that a rebound in output is unlikely soon.
Monetisation of other discoveries may take longer as government approvals drag on.
But expectations are low. This may be largely factored into consensus estimates,
though; further the sensitivity of EPS to ~10mmscmd lower volumes is also less salient
now at just ~4%. Pertinently, E&P valuation expectations are also near five year lows;
our own valuation of Rs223/sh, for example, is ~Rs60/sh lower than that implied by
the BP transaction. Meanwhile, we are encouraged by the progress in the shale-gas
ventures where net output is now at ~2-3mmscmd plus ~7-8kbpd of condensate.
BUY. After its 18% YTD correction, Reliance trades at a five year high discount of
~25% to the market Sensex and 8-20% lower than global peers on Mar12/13 PE. BUY.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
Reliance’s 1QFY12 net rose 5%QoQ to Rs56.5bn – inline with expectations but
boosted by below Ebitda items. Ebitda was flat QoQ; higher than expected refining
offset weaker petchem. The approval of the BP deal is a welcome step but a
rebound in output may take 2-3 years while output from other discoveries may
take even longer given the slowdown in government approvals. During this time
the overseas shale ventures should gain scale, though, and add 8-10% to Ebitda.
With valuations attractive at a 25% discount to Sensex, we maintain BUY.
1QFY12 net profits up 5% QoQ. Reliance’s 1QFY12 net profits rose 17%YoY/5%QoQ
to Rs56.6bn (Rs17.4/sh) – inline with estimates. Lower than expected depreciation
(petchem, E&P) and interest costs, higher other income (+Rs34bn QoQ cash balance)
and Rs1.37bn in forex gains boosted the bottom-line. Core Ebitda was flat QoQ at
Rs98bn (US$8.8bn annualised), though, as stronger refining offset weaker petchem.
With the SEZ refinery now liable for MAT, effective tax rates also rose 2.5ppt to 22%.
Refining boosted by higher throughput. Refining Ebit rose 28% QoQ – better than
expected led by marginally higher GRMs (US$10.3/bbl) and higher throughput (17mt,
+2%QoQ). While the trend up in GRMs was expected we have been disappointed in the
recent past by Reliance’s inability to capture the strength in benchmark spreads in
realised margins; management indicated soft light-heavy spreads, product mix, higher
solid spread losses, usage of higher cost LNG (after a government order) as reasons.
Weak petchem on higher exports. Petrochem Ebit fell 16%QoQ (much weaker than
expected) on lower polymer and polyester intermediate spreads as also from higher
proportion of lower margin export sales due to a 4-5%YoY fall in domestic demand.
Creditably, though, production volumes rose while inventories remained under control.
Domestic E&P a drag. E&P Ebit also fell 6% QoQ despite higher crude as lower gas
production at PMT, KG-D6 weighed. Declining KG-D6 gas volumes (now ~39mmscmd
in D1-D3) remains the key headwind for Reliance. While the approval of the BP deal
paves the way for greater cooperation in understanding the KG-D6 reservoir issues,
our interactions during the analyst meet indicates that drilling and completions of
additional wells may take 2-3 years implying that a rebound in output is unlikely soon.
Monetisation of other discoveries may take longer as government approvals drag on.
But expectations are low. This may be largely factored into consensus estimates,
though; further the sensitivity of EPS to ~10mmscmd lower volumes is also less salient
now at just ~4%. Pertinently, E&P valuation expectations are also near five year lows;
our own valuation of Rs223/sh, for example, is ~Rs60/sh lower than that implied by
the BP transaction. Meanwhile, we are encouraged by the progress in the shale-gas
ventures where net output is now at ~2-3mmscmd plus ~7-8kbpd of condensate.
BUY. After its 18% YTD correction, Reliance trades at a five year high discount of
~25% to the market Sensex and 8-20% lower than global peers on Mar12/13 PE. BUY.
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