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RIL reported 2Q FY12 EPS of Rs17.4, in line with our estimate,
although GRM of US$10.1/bbl declined 20 cents QoQ. EBITDA
fell 1%, largely due to accounting of the BP deal in end August.
● RIL’s GRM premium to Reuters Singapore complex margins has
now fallen to US$1/bbl. RIL is, however, on track to meet our FY12
GRM estimates. The company’s petrochemical EBITDA increased
10% QoQ, although overall margins were weaker. We think this
may be a reversal of the 1Q disappointment. Asian margins
continue to be volatile though; RIL petchem exports are up sharply.
● RIL suggests volume growth at D6 will be from monetisation of
newer fields. The company is also re-evaluating all exploration
plans with BP, and may miss near-term drilling commitments. This
could potentially form another bone of contention between RIL
and the government, noise on which could hurt.
● We update our model for the impact of the BP transaction, update
CBM/NEC field metrics and near-term KG D6 oil and gas volume
estimates. Our FY12E/13E/14E EPS fall 2/2/6%. We reduce our
target price from Rs1,057 to Rs1,022. Maintain OUTPERFORM.
Although RIL’s 2Q FY12 EPS of Rs17.4 was in line with our estimate,
headline GRM of US$10.1/bbl was down 20 cents QoQ. Total EBITDA
fell 1% QoQ, principally on the reduction of RIL’s share in its E&P assets
(as the deal with BP has been accounted for beginning September
2011). Total DD&A cost is down 7% as a consequence, and other
income is up 2% QoQ. This ‘accounting transition’ should have an
impact in 3Q FY12 as well, being applicable for the full quarter.
Refining: RIL’s premium to Reuters Singapore Complex margins is
now US$1/bbl, the lowest in 26 quarters. Singapore complex margins
were up US$0.5/bbl QoQ, while our RIL refining tracker was down
US$0.8-1.0/bbl. In hindsight, the contraction of RIL’s premium to
Singapore complex may be due to: (1) inventory losses, (2) the
strength in Fuel Oil cracks, that helps benchmarks, but not RIL, (3) the
strength in gasoline cracks that helps RIL, but has a greater weight in
most benchmarks, (4) weaker LPG and naphtha cracks and (5)
increasing costs of LNG used to fuel the refinery.
Petrochemicals: The petrochemicals business surprised positively—
EBITDA was up 10% QoQ. Our RIL petchem margin tracker was
down 5%. This, we believe may be a reversal of large disappointment
in 1Q, when RIL petchem EBITDA fell, despite stronger headline
margins. RIL suggests Indian demand for both polyesters and
polymers is up c.21% QoQ—the recovery might have helped overall
margins. Petrochemical export volumes are up materially and
inventories have likely gone up, which indicates some room for further
strength—if Indian and regional demand improves.
E&P: E&P EBITDA fell 8% QoQ, principally due to the accounting of
the BP deal (from September 2011). Gas output at KG D6 averaged
45 mmscmd for the quarter. MA oil production averaged 13.9 kbopd
(15.5 kbopd in 1Q FY12). Although gas output at PMT remained flat,
oil production has fallen 6% QoQ; lower oil prices have likely hurt
income as well. Ceteris Paribus, RIL’s E&P EBITDA should decline
some more in 3Q FY12, as the full impact of the BP deal is felt.
At the analyst meet RIL suggested refining margins could remain
robust for the next two years at least, as effective capacity addition
remains low and demand continues to grow. RIL also suggested that it
is re-evaluating its exploration strategy together with BP, and that it
may not drill too many exploration wells near term.
We update our model for the impact of the BP transaction (we had
earlier assumed an April 2012 impact for simplicity), update the CBM/
NEC field metrics (delay another year into FY15) and near-term KG
D6 oil and gas volume estimates. Our FY12E/13E/14E EPS fall
2/2/6%. We lower our target price from Rs1,057 to Rs1,022. We
maintain OUTPERFORM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RIL reported 2Q FY12 EPS of Rs17.4, in line with our estimate,
although GRM of US$10.1/bbl declined 20 cents QoQ. EBITDA
fell 1%, largely due to accounting of the BP deal in end August.
● RIL’s GRM premium to Reuters Singapore complex margins has
now fallen to US$1/bbl. RIL is, however, on track to meet our FY12
GRM estimates. The company’s petrochemical EBITDA increased
10% QoQ, although overall margins were weaker. We think this
may be a reversal of the 1Q disappointment. Asian margins
continue to be volatile though; RIL petchem exports are up sharply.
● RIL suggests volume growth at D6 will be from monetisation of
newer fields. The company is also re-evaluating all exploration
plans with BP, and may miss near-term drilling commitments. This
could potentially form another bone of contention between RIL
and the government, noise on which could hurt.
● We update our model for the impact of the BP transaction, update
CBM/NEC field metrics and near-term KG D6 oil and gas volume
estimates. Our FY12E/13E/14E EPS fall 2/2/6%. We reduce our
target price from Rs1,057 to Rs1,022. Maintain OUTPERFORM.
Although RIL’s 2Q FY12 EPS of Rs17.4 was in line with our estimate,
headline GRM of US$10.1/bbl was down 20 cents QoQ. Total EBITDA
fell 1% QoQ, principally on the reduction of RIL’s share in its E&P assets
(as the deal with BP has been accounted for beginning September
2011). Total DD&A cost is down 7% as a consequence, and other
income is up 2% QoQ. This ‘accounting transition’ should have an
impact in 3Q FY12 as well, being applicable for the full quarter.
Refining: RIL’s premium to Reuters Singapore Complex margins is
now US$1/bbl, the lowest in 26 quarters. Singapore complex margins
were up US$0.5/bbl QoQ, while our RIL refining tracker was down
US$0.8-1.0/bbl. In hindsight, the contraction of RIL’s premium to
Singapore complex may be due to: (1) inventory losses, (2) the
strength in Fuel Oil cracks, that helps benchmarks, but not RIL, (3) the
strength in gasoline cracks that helps RIL, but has a greater weight in
most benchmarks, (4) weaker LPG and naphtha cracks and (5)
increasing costs of LNG used to fuel the refinery.
Petrochemicals: The petrochemicals business surprised positively—
EBITDA was up 10% QoQ. Our RIL petchem margin tracker was
down 5%. This, we believe may be a reversal of large disappointment
in 1Q, when RIL petchem EBITDA fell, despite stronger headline
margins. RIL suggests Indian demand for both polyesters and
polymers is up c.21% QoQ—the recovery might have helped overall
margins. Petrochemical export volumes are up materially and
inventories have likely gone up, which indicates some room for further
strength—if Indian and regional demand improves.
E&P: E&P EBITDA fell 8% QoQ, principally due to the accounting of
the BP deal (from September 2011). Gas output at KG D6 averaged
45 mmscmd for the quarter. MA oil production averaged 13.9 kbopd
(15.5 kbopd in 1Q FY12). Although gas output at PMT remained flat,
oil production has fallen 6% QoQ; lower oil prices have likely hurt
income as well. Ceteris Paribus, RIL’s E&P EBITDA should decline
some more in 3Q FY12, as the full impact of the BP deal is felt.
At the analyst meet RIL suggested refining margins could remain
robust for the next two years at least, as effective capacity addition
remains low and demand continues to grow. RIL also suggested that it
is re-evaluating its exploration strategy together with BP, and that it
may not drill too many exploration wells near term.
We update our model for the impact of the BP transaction (we had
earlier assumed an April 2012 impact for simplicity), update the CBM/
NEC field metrics (delay another year into FY15) and near-term KG
D6 oil and gas volume estimates. Our FY12E/13E/14E EPS fall
2/2/6%. We lower our target price from Rs1,057 to Rs1,022. We
maintain OUTPERFORM.
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