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UBS Investment Research
Reliance Industries
M arginally below UBSe
Event: Q1FY12 earnings ahead but operating nos. below UBSe
RIL’s Q1FY12 earnings at Rs56.6bn were ahead of UBS estimates but in line with
consensus. However EBITDA, at Rs99.3bn, was lower than our estimates, largely
on weaker petrochemical spreads and partly due to lower gas volumes. Overall,
operating numbers were a marginal miss.
Impact: Robust refining but weaker petchem operations
Refining EBIT at Rs32bn rose strongly, up 28% QoQ and mostly made up our
thesis of stronger operating results after a weak 4Q. The company has reported a
GRM of US$10.3/bbl in current quarter (vs. 9.2 in Q4FY11) and throughput of
17m tonnes. However, we believe the lower petchem EBIT points towards weaker
domestic demand as international petchem spreads do not fully justify the 16%
QoQ decline, company says is seeing negative demand for a number of products.
Action: Maintain buy; trim FY12E/FY13E earnings
We reduce our FY12/FY13 earnings estimates by 4%/2% respectively on weaker
petchem segment. No change to our expectation of a pickup in margins from Sept
2011 (Q3FY12) on seasonal demand and soft landing of the Chinese economy. We
believe concerns over gas production as well as remarks by the Govt. auditors are
overdone and as these get resolved, there is upside to stock performance.
Valuation: Reduce price target to Rs1,150/share; maintain Buy
We base our Rs1,150 price target on a sum-of-the-parts valuation. We value the
petchem/refining business at 7xFY13e EBIDTA and upstream on NPV. At
7.2xFY12e EV/EBIDTA and 12.2xFY12eEPS, stock looks attractive.
Outlook
The stock has come off on the back of delay in approval of the BP upstream deal,
questions raised by the comptroller auditor general (CAG) and declining gas
production. We expect these concerns to abate, with BP deal already having got
Govt approval. We believe concerns on auditors are overdone and believe the
Govt regulators replies to the auditor do not in anyway point to any wrong doing
by upstream operators.
With the upstream deal done, Reliance will become more leveraged to
refining/petchem (these should now contribute over 85% to EBIT). We expect
these petchem/refining margins to improve by Sept on the back of steady growth
in global economy. On petchem we agree with the company assessment that
new global capacity addition will slowdown sharply from 2011 onwards and this
should result in an improved spreads.
Valuation
We maintain Buy rating but cut our price target to Rs1150/share. Our valuation
is based on sum of parts approach. We value the commodity business i.e.
refining and petrochemical at 7xFY13e EV/EBIDTA, within the Asian peer
range of 6.6-10.5x.
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
Statement of Risk
We believe gas volumes from KG-D6 are key drivers of the stock’s performance.
Refining and petrochemical margins are also major drivers of the company’s
earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Reliance Industries
M arginally below UBSe
Event: Q1FY12 earnings ahead but operating nos. below UBSe
RIL’s Q1FY12 earnings at Rs56.6bn were ahead of UBS estimates but in line with
consensus. However EBITDA, at Rs99.3bn, was lower than our estimates, largely
on weaker petrochemical spreads and partly due to lower gas volumes. Overall,
operating numbers were a marginal miss.
Impact: Robust refining but weaker petchem operations
Refining EBIT at Rs32bn rose strongly, up 28% QoQ and mostly made up our
thesis of stronger operating results after a weak 4Q. The company has reported a
GRM of US$10.3/bbl in current quarter (vs. 9.2 in Q4FY11) and throughput of
17m tonnes. However, we believe the lower petchem EBIT points towards weaker
domestic demand as international petchem spreads do not fully justify the 16%
QoQ decline, company says is seeing negative demand for a number of products.
Action: Maintain buy; trim FY12E/FY13E earnings
We reduce our FY12/FY13 earnings estimates by 4%/2% respectively on weaker
petchem segment. No change to our expectation of a pickup in margins from Sept
2011 (Q3FY12) on seasonal demand and soft landing of the Chinese economy. We
believe concerns over gas production as well as remarks by the Govt. auditors are
overdone and as these get resolved, there is upside to stock performance.
Valuation: Reduce price target to Rs1,150/share; maintain Buy
We base our Rs1,150 price target on a sum-of-the-parts valuation. We value the
petchem/refining business at 7xFY13e EBIDTA and upstream on NPV. At
7.2xFY12e EV/EBIDTA and 12.2xFY12eEPS, stock looks attractive.
Outlook
The stock has come off on the back of delay in approval of the BP upstream deal,
questions raised by the comptroller auditor general (CAG) and declining gas
production. We expect these concerns to abate, with BP deal already having got
Govt approval. We believe concerns on auditors are overdone and believe the
Govt regulators replies to the auditor do not in anyway point to any wrong doing
by upstream operators.
With the upstream deal done, Reliance will become more leveraged to
refining/petchem (these should now contribute over 85% to EBIT). We expect
these petchem/refining margins to improve by Sept on the back of steady growth
in global economy. On petchem we agree with the company assessment that
new global capacity addition will slowdown sharply from 2011 onwards and this
should result in an improved spreads.
Valuation
We maintain Buy rating but cut our price target to Rs1150/share. Our valuation
is based on sum of parts approach. We value the commodity business i.e.
refining and petrochemical at 7xFY13e EV/EBIDTA, within the Asian peer
range of 6.6-10.5x.
Reliance Industries
Reliance Industries (RIL) is the largest integrated oil and gas company in India.
Its three main businesses are exploration & production, refining and
petrochemicals. Its two refineries in Jamnagar, Gujarat have among the highest
complexity globally and a combined capacity of 1mbpd. The company's FY10
turnover was US$46bn. It derives more than 50% of its revenue from exports.
Statement of Risk
We believe gas volumes from KG-D6 are key drivers of the stock’s performance.
Refining and petrochemical margins are also major drivers of the company’s
earnings.
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