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Key Takeaways
FY12 GRM till-date significantly above last two years
RIL's refining utilization rates (12-month average: 107%) have been significantly
above global averages, led by its advantage due to economies of scale and lower
operating costs.
As against the dismal refining margins in the last two years (USD6.7/bbl in FY10
and USD8.4/bbl in FY11), margins have been strong in FY12, with 1QFY12 average
of USD10.3/bbl. We model full-year margins of USD9.9/bbl and believe that the
global economic health will have a bearing on the refining industry.
RIL had reported 1QFY12 GRM at USD10.3/bbl, implying a premium of USD1.8/bbl
over benchmark Singapore GRM. We model full-year margins of USD9.9/bbl and
believe that the global economic health will have a bearing on the refining industry.
2QFY12 average Reuters Singapore GRM till-date have averaged USD8.6/bbl v/s
USD8.5/bbl in 1QFY12.
Doubling petchem capacity
RIL has announced downstream projects, with an estimated capex of USD11-12b,
which include (1) doubling of polyester capacity, (2) setting up of new 1.5mmtpa
off-gases based cracker, and (3) integrated gasification combined cycle (IGCC) project.
Polyester capacity will double post expansion and the units should start commissioning
from 2013.
1QFY12 witnessed de-stocking due to volatile prices and fiscal tightening in China.
However, 2H is likely to be better, led by seasonal factors like Diwali and Christmas
driving demand.
Shale gas production to ramp-up, BP's entry would accelerate E&P plans
We believe that the recent tie-up with BP is a game changer event for RIL's E&P
plans, providing the best in-class technical support. This could lead to accelerated
business ramp up over the next 2-3 years.
BP has already given USD2b (of the total USD7.2b) and is likely to give the remaining
amount in two tranches. The first tranche is expected to come in the coming month
and the last by 3QFY12.
Of the three shale gas JVs, two have commenced production and the third is likely
to start production in the current quarter. Shale gas production should ramp up
meaningfully in the next few years.
Valuation and view
Adjusted for treasury shares, RIL trades at 10.3x FY12E EPS of INR75.3.
Our SOTP-based target price is INR1,025. Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
FY12 GRM till-date significantly above last two years
RIL's refining utilization rates (12-month average: 107%) have been significantly
above global averages, led by its advantage due to economies of scale and lower
operating costs.
As against the dismal refining margins in the last two years (USD6.7/bbl in FY10
and USD8.4/bbl in FY11), margins have been strong in FY12, with 1QFY12 average
of USD10.3/bbl. We model full-year margins of USD9.9/bbl and believe that the
global economic health will have a bearing on the refining industry.
RIL had reported 1QFY12 GRM at USD10.3/bbl, implying a premium of USD1.8/bbl
over benchmark Singapore GRM. We model full-year margins of USD9.9/bbl and
believe that the global economic health will have a bearing on the refining industry.
2QFY12 average Reuters Singapore GRM till-date have averaged USD8.6/bbl v/s
USD8.5/bbl in 1QFY12.
Doubling petchem capacity
RIL has announced downstream projects, with an estimated capex of USD11-12b,
which include (1) doubling of polyester capacity, (2) setting up of new 1.5mmtpa
off-gases based cracker, and (3) integrated gasification combined cycle (IGCC) project.
Polyester capacity will double post expansion and the units should start commissioning
from 2013.
1QFY12 witnessed de-stocking due to volatile prices and fiscal tightening in China.
However, 2H is likely to be better, led by seasonal factors like Diwali and Christmas
driving demand.
Shale gas production to ramp-up, BP's entry would accelerate E&P plans
We believe that the recent tie-up with BP is a game changer event for RIL's E&P
plans, providing the best in-class technical support. This could lead to accelerated
business ramp up over the next 2-3 years.
BP has already given USD2b (of the total USD7.2b) and is likely to give the remaining
amount in two tranches. The first tranche is expected to come in the coming month
and the last by 3QFY12.
Of the three shale gas JVs, two have commenced production and the third is likely
to start production in the current quarter. Shale gas production should ramp up
meaningfully in the next few years.
Valuation and view
Adjusted for treasury shares, RIL trades at 10.3x FY12E EPS of INR75.3.
Our SOTP-based target price is INR1,025. Neutral.
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