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Reliance Industries ---------------------------------------------------------- Maintain OUTPERFORM
New report: back to refining
● RIL reported 1Q12 EPS of Rs17.3, in line with estimates and 5%
up QoQ. A GRM of US$10.3/bbl and throughput of 17 mtpa beat
estimates, but the petchem EBITDA was 15% below estimates.
KG gas output averaged 49 mmscmd (down 2.1 mmscmd QoQ).
● RIL has drilled another well at D1/D3, and plans to drill two more.
Yet RIL, at the analysts’ meeting, suggested it may not complete
and connect these wells for the next 2-3 years as it waits for:
1) drilling results from new wells; 2) government. approvals; and
3) has enough wells to economise the tendering of completion
equipment and services. This effectively means KG gas output will
continue to creep down over the next several quarters.
● We update our model to: 1) reflect the transaction with BP and
2) cut FY13/14 KG gas output from 70/85 to 43/40 mmscmd.
FY13E EPS falls marginally while FY14 EPS falls 5% to Rs93.
Our target price falls from Rs1,142 to Rs1,057/share.
● With a positive view on refining and undemanding valuations, we
retain our positive view on the stock. The seasonal, late year
strength in refining can help. We maintain our OUTPERFORM.
RIL reported 1QFY12 EPS of Rs17.3, in line with our estimates and
5% up QoQ (17% YoY). EBITDA grew only 1% QoQ and was behind
our estimates, but lower depreciation, higher other income and lower
interest costs meant PBT held up. RIL tax rates increased 260 bps
QoQ due to higher MAT incidence at the SEZ refinery.
Refining: The headline GRM of US$10.3/bbl was higher than our
estimates of US$10/bbl. Refining throughput of 17 mtpa also surprised
and contributed to refining EBITDA being 10% ahead of our estimates.
Despite this beat, RIL’s premium to Reuters Singapore Complex
margins has fallen QoQ, likely due to weaker naphtha margins and
flattish solids (pet-coke + sulphur) pricing. On a YoY basis, RIL’s
reported margins have also been hurt by the switch in natural gas input
to the refineries – from the inexpensive KG D6 gas to the much costlier
LNG.
Petchem: The petrochemicals business disappointed. EBITDA at
Rs26.8 bn was down 17% sequentially and 15% less than our
estimates. In its quarterly presentation, RIL pointed to a significant
slowdown in demand for both polymers and polyesters (on destocking
and a genuine slowdown in demand). Larger potential
discounting and a higher proportion of exports as a consequence
could have led to the petchem segment deviating from our tracker.
E&P: E&P EBITDA also fell 6% QoQ to Rs30.9 bn. KG D6 gas output
was at 48.6 mmscmd (down from 50.7 in 4Q11) and KG oil output fell
from 16.3k bopd to 15.5k bopd. The declines at PMT were sharper.
Oil output fell 12% QoQ, while gas output fell 4% QoQ.
At the analysts’ meeting, RIL suggested it has drilled another well at
the D1/D3 fields and will drill another two. RIL will, however, wait for:
1) results from these wells; 2) completion of all drilling; and
3) government approvals before tendering for well completion
equipment. RIL estimates that well completion, therefore, may not
occur for another 2-3 years. RIL believes KG gas output has stabilised
and declines henceforth will not be as sharp as witnessed over the
past few quarters. This is perhaps the first clear ‘guidance’ on KG gas
volume from RIL so we reduce our gas volume estimates through to
FY14. More importantly, this clarification also postpones the expected
near-term catalyst – clarity on (and actual increase of) gas volume
ramp-up at D6. With the petchem business also struggling near term,
RIL’s EPS prospects are now more reliant on refining margins.
We update our model: 1) for lower gas output, b) and update numbers
for the BP transaction (which for simplicity we account from FY13).
FY13E EPS falls marginally, FY14E EPS falls from Rs98 to Rs93. Our
target price falls from Rs1,142 to Rs1,057 (implying 20% upside).
Potential strength in refining and undemanding valuations are why we
maintain our positive bias on RIL. Maintain our OUTPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries ---------------------------------------------------------- Maintain OUTPERFORM
New report: back to refining
● RIL reported 1Q12 EPS of Rs17.3, in line with estimates and 5%
up QoQ. A GRM of US$10.3/bbl and throughput of 17 mtpa beat
estimates, but the petchem EBITDA was 15% below estimates.
KG gas output averaged 49 mmscmd (down 2.1 mmscmd QoQ).
● RIL has drilled another well at D1/D3, and plans to drill two more.
Yet RIL, at the analysts’ meeting, suggested it may not complete
and connect these wells for the next 2-3 years as it waits for:
1) drilling results from new wells; 2) government. approvals; and
3) has enough wells to economise the tendering of completion
equipment and services. This effectively means KG gas output will
continue to creep down over the next several quarters.
● We update our model to: 1) reflect the transaction with BP and
2) cut FY13/14 KG gas output from 70/85 to 43/40 mmscmd.
FY13E EPS falls marginally while FY14 EPS falls 5% to Rs93.
Our target price falls from Rs1,142 to Rs1,057/share.
● With a positive view on refining and undemanding valuations, we
retain our positive view on the stock. The seasonal, late year
strength in refining can help. We maintain our OUTPERFORM.
RIL reported 1QFY12 EPS of Rs17.3, in line with our estimates and
5% up QoQ (17% YoY). EBITDA grew only 1% QoQ and was behind
our estimates, but lower depreciation, higher other income and lower
interest costs meant PBT held up. RIL tax rates increased 260 bps
QoQ due to higher MAT incidence at the SEZ refinery.
Refining: The headline GRM of US$10.3/bbl was higher than our
estimates of US$10/bbl. Refining throughput of 17 mtpa also surprised
and contributed to refining EBITDA being 10% ahead of our estimates.
Despite this beat, RIL’s premium to Reuters Singapore Complex
margins has fallen QoQ, likely due to weaker naphtha margins and
flattish solids (pet-coke + sulphur) pricing. On a YoY basis, RIL’s
reported margins have also been hurt by the switch in natural gas input
to the refineries – from the inexpensive KG D6 gas to the much costlier
LNG.
Petchem: The petrochemicals business disappointed. EBITDA at
Rs26.8 bn was down 17% sequentially and 15% less than our
estimates. In its quarterly presentation, RIL pointed to a significant
slowdown in demand for both polymers and polyesters (on destocking
and a genuine slowdown in demand). Larger potential
discounting and a higher proportion of exports as a consequence
could have led to the petchem segment deviating from our tracker.
E&P: E&P EBITDA also fell 6% QoQ to Rs30.9 bn. KG D6 gas output
was at 48.6 mmscmd (down from 50.7 in 4Q11) and KG oil output fell
from 16.3k bopd to 15.5k bopd. The declines at PMT were sharper.
Oil output fell 12% QoQ, while gas output fell 4% QoQ.
At the analysts’ meeting, RIL suggested it has drilled another well at
the D1/D3 fields and will drill another two. RIL will, however, wait for:
1) results from these wells; 2) completion of all drilling; and
3) government approvals before tendering for well completion
equipment. RIL estimates that well completion, therefore, may not
occur for another 2-3 years. RIL believes KG gas output has stabilised
and declines henceforth will not be as sharp as witnessed over the
past few quarters. This is perhaps the first clear ‘guidance’ on KG gas
volume from RIL so we reduce our gas volume estimates through to
FY14. More importantly, this clarification also postpones the expected
near-term catalyst – clarity on (and actual increase of) gas volume
ramp-up at D6. With the petchem business also struggling near term,
RIL’s EPS prospects are now more reliant on refining margins.
We update our model: 1) for lower gas output, b) and update numbers
for the BP transaction (which for simplicity we account from FY13).
FY13E EPS falls marginally, FY14E EPS falls from Rs98 to Rs93. Our
target price falls from Rs1,142 to Rs1,057 (implying 20% upside).
Potential strength in refining and undemanding valuations are why we
maintain our positive bias on RIL. Maintain our OUTPERFORM.
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