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RIL reported in-line 2QFY12 results. The BP transaction is effective from 30 Aug 2011 and we
believe that RIL's standalone balance sheet would have moved to a net cash position on 3
October 2011 (when the final cash instalment from BP was received). We maintain our earnings
estimates, Buy rating and TP of Rs925.
Overall results in line
RIL reported 2QFY12 net profit of Rs57bn (16% yoy), which was in line with our as well as
Bloomberg consensus expectations. The BP transaction was effective from 30 August 2011,
meaning that the drop in stake in KG-D6 block from 90% to 60% was effective from that date.
The final transaction value (which was value of US$7.2bn agreed on 1 January 2011 less
cash inflows due to BP by 30 August 2011) worked out to Rs322bn, which was adjusted
against the cost of the assets. As a result of this adjustment, the drop in depreciation for the
month of September was Rs2.7bn. Consequently, the depreciation costs in 2HFY12 would
broadly decline at that rate (also depending upon production rate).
Gross debt at Rs714bn was up Rs44bn qoq only due to rupee depreciation. Net debt at end
of quarter was Rs99.1bn (compared to Rs212.6bn at end of 1QFY12). At end of 2QFY12, the
last instalment due from BP was Rs147bn, which was disclosed under 'Other current assets'.
This amount was realised on 3 October 2011, which leads us to believe that RIL standalone
would now be a net cash company.
E&P segment
Segment EBIT at Rs15.3bn (down 10.3% yoy) was in-line with expectations. KG-D6 gross
gas production was 44.8mmscmd in 2QFY1 2 (down from 48.1 in 1QFY12) and management
has not provided any guidance on the near-term production profile. RIL and BP are now keen
to develop the balance discoveries in KG-D6 and expect the additional production to start
from 2015 (we are assuming 2016).
RIL and BP have decided to review afresh the entire exploration portfolio and new drilling has
been stopped until completion of this review. Given that each block needs to be explored
within a specified period, the Indian government (GOI) may need to be asked to extend these
deadlines. RIL/BP are unlikely to commence drilling unless these GOI extensions are in
place.
RIL's CBM block can potentially produce 4mmscmd and it is currently seeking GOI approval
to price this gas at per LNG long-term contracts. For evacuation of this gas, a 300km pipeline
connection to GAIL's HVJ pipeline needs to be built, which would take 24 months. Pipeline
construction would commence only after GOI approves the gas price.
R&M segment
Segment EBIT at Rs30.8 (up 40.3% yoy) was 6% below our estimates. Refining throughput
was 17.1mmt (our estimate 16.9mmt) while GRM was US$10.1/bbl (US$10.2/bbl). While
Singapore GRMs were strong (US$9.2/bbl vs US$8.8/bbl in 1QFY12), they were driven by
higher margins for gasoline and fuel oil. The relative weakness in RIL GRMs were on account
of lower crude differentials (US$3.8/bbl vs US$5/bbl in 1QFY12) and lower margins for diesel
(US$17.1 vs US$15.1 in 1QFY12). Further, most of the internal gas consumption was
sourced via LNG where pricing has strengthened.
Petrochem segment
Segment EBIT at Rs24.2bn (up 10.2% yoy) was up 13% yoy. Realised margins appear to be
better than our estimates driven by a sharp 21% qoq improvement in demand for both
polymers and polyester.
The final investment decision for the two mega projects (petchem cracker and coke
gasification) is still pending. Project economics are improving as time is passing (costs are
coming down) and the company is obviously trying to get the capex cycle right.
The polyester and polyester intermediate projects appear on track for completion by 2HCY13.
Other issues
Asset capitalisation during the quarter of Rs54.9bn was mainly on account of capitalisation of
forex losses (Rs45bn). The actual cash spending on new assets was just Rs8.5bn.
RIL management did not provide any guidance on timing of the launch for the telecom
operations.
During 1HFY12, RIL standalone invested an additional Rs8bn in retail operations, Rs2.5bn in
telecom and Rs2bn in SEZs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RIL reported in-line 2QFY12 results. The BP transaction is effective from 30 Aug 2011 and we
believe that RIL's standalone balance sheet would have moved to a net cash position on 3
October 2011 (when the final cash instalment from BP was received). We maintain our earnings
estimates, Buy rating and TP of Rs925.
Overall results in line
RIL reported 2QFY12 net profit of Rs57bn (16% yoy), which was in line with our as well as
Bloomberg consensus expectations. The BP transaction was effective from 30 August 2011,
meaning that the drop in stake in KG-D6 block from 90% to 60% was effective from that date.
The final transaction value (which was value of US$7.2bn agreed on 1 January 2011 less
cash inflows due to BP by 30 August 2011) worked out to Rs322bn, which was adjusted
against the cost of the assets. As a result of this adjustment, the drop in depreciation for the
month of September was Rs2.7bn. Consequently, the depreciation costs in 2HFY12 would
broadly decline at that rate (also depending upon production rate).
Gross debt at Rs714bn was up Rs44bn qoq only due to rupee depreciation. Net debt at end
of quarter was Rs99.1bn (compared to Rs212.6bn at end of 1QFY12). At end of 2QFY12, the
last instalment due from BP was Rs147bn, which was disclosed under 'Other current assets'.
This amount was realised on 3 October 2011, which leads us to believe that RIL standalone
would now be a net cash company.
E&P segment
Segment EBIT at Rs15.3bn (down 10.3% yoy) was in-line with expectations. KG-D6 gross
gas production was 44.8mmscmd in 2QFY1 2 (down from 48.1 in 1QFY12) and management
has not provided any guidance on the near-term production profile. RIL and BP are now keen
to develop the balance discoveries in KG-D6 and expect the additional production to start
from 2015 (we are assuming 2016).
RIL and BP have decided to review afresh the entire exploration portfolio and new drilling has
been stopped until completion of this review. Given that each block needs to be explored
within a specified period, the Indian government (GOI) may need to be asked to extend these
deadlines. RIL/BP are unlikely to commence drilling unless these GOI extensions are in
place.
RIL's CBM block can potentially produce 4mmscmd and it is currently seeking GOI approval
to price this gas at per LNG long-term contracts. For evacuation of this gas, a 300km pipeline
connection to GAIL's HVJ pipeline needs to be built, which would take 24 months. Pipeline
construction would commence only after GOI approves the gas price.
R&M segment
Segment EBIT at Rs30.8 (up 40.3% yoy) was 6% below our estimates. Refining throughput
was 17.1mmt (our estimate 16.9mmt) while GRM was US$10.1/bbl (US$10.2/bbl). While
Singapore GRMs were strong (US$9.2/bbl vs US$8.8/bbl in 1QFY12), they were driven by
higher margins for gasoline and fuel oil. The relative weakness in RIL GRMs were on account
of lower crude differentials (US$3.8/bbl vs US$5/bbl in 1QFY12) and lower margins for diesel
(US$17.1 vs US$15.1 in 1QFY12). Further, most of the internal gas consumption was
sourced via LNG where pricing has strengthened.
Petrochem segment
Segment EBIT at Rs24.2bn (up 10.2% yoy) was up 13% yoy. Realised margins appear to be
better than our estimates driven by a sharp 21% qoq improvement in demand for both
polymers and polyester.
The final investment decision for the two mega projects (petchem cracker and coke
gasification) is still pending. Project economics are improving as time is passing (costs are
coming down) and the company is obviously trying to get the capex cycle right.
The polyester and polyester intermediate projects appear on track for completion by 2HCY13.
Other issues
Asset capitalisation during the quarter of Rs54.9bn was mainly on account of capitalisation of
forex losses (Rs45bn). The actual cash spending on new assets was just Rs8.5bn.
RIL management did not provide any guidance on timing of the launch for the telecom
operations.
During 1HFY12, RIL standalone invested an additional Rs8bn in retail operations, Rs2.5bn in
telecom and Rs2bn in SEZs.
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