Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Our RIL GRM tracker is down US$3/bbl QoQ QTD. Spot margins are
US$5.6/bbl lower than 2Q. This is worse than the Reuters Singapore
benchmark, or most other Asian refiners that have benefitted from
FO/middle distillate cracks (and are marginally down QTD).
● We estimate c.US$1.5/bbl of this decline is due to crude dynamics,
with light-heavy differentials falling (AL-AH down US$0.2/bbl and
Dubai-Maya down US$1.4/bbl QTD). RIL’s actual crude diet in 2Q
and its sourcing ability may affect this QoQ calculation though.
● Gasoline cracks have not sustained at the current low levels for long
for the past several years, and may improve near term. Diesel may
strengthen further as the winter demand plays out. RIL GRM may
end the quarter better than the current weak spot estimates. The
depreciation of the rupee should help segment EBIT as well.
● At 6.5x EV/EBITDA (Asian average), a US$8/bbl FY13E GRM would
imply a Rs175/share cut to our NAV estimate. Without including any
E&P upside, or valuations for shale and broadband, RIL could still be
worth Rs772/share. With low capacity additions in 2012E, it may be
premature to expect a sustained sharp correction in refining margins.
RIL refining margins in a weak spot
Our RIL refining margin tracker is down US$3/bbl QoQ QTD in 3Q FY12.
Spot margins are US$5.6/bbl below the 2Q average. Gasoline cracks
have fallen US$2.6/bbl QoQ (on seasonally weak demand and the
restart of regional refining capacity) while naphtha cracks have
deteriorated by another US$6.4/bbl (on weak petchem demand). Spot
diesel cracks are up US$3.4/bbl (seasonal strength on winter demand),
but are still flat on a QTD basis. RIL’s margin is so far tracking worse
than the Reuters’ Singapore complex benchmark and that for other
Asian refiners (down only marginally QoQ), which have benefitted from
higher Fuel Oil/Jet Kero cracks. FO cracks are up US$3.7/bbl QTD on
strong East Asian demand and supply constraints, although these have
come off a little recently. LPG cracks are US$2.6/bbl lower as well.
As much due to crude variances
Of the US$3/bbl QTD margin decline, about US$1.5/bbl is due to specific
crude price changes. The heavier crude grade benchmarks (Arab
Heavy/Maya, on which our tracker is based) have been stronger than the
lighter Dubai—which serves to reduce RIL’s complexity benefit. This
could also cloud near-term margin estimates, as it will be impacted by:
(1) RIL’s ability to source crude (which has previously been cited as a
company strength), and (2) the specific crude diet now, and in 2Q12.
RIL may also have (1) some (though not much) product flexibility and (2)
product price hedges—that can affect reported margins. 8% QTD QoQ
depreciation of the rupee should help refining segment EBIT as well.
Hoping for a bounce
Other than during the crisis, gasoline cracks have not sustained at the
current low levels for an extended period for the past eight years (cracks
were low before 2003—at lower oil price levels). Diesel margins may
strengthen on seasonal demand, helping RIL GRM near term.
At 6.5x EV/EBITDA (Asian refining average), a US$8/bbl FY13E GRM
would imply a Rs175/share cut to our RIL NAV estimate. Without
including any E&P upside, or valuations for US shale and broadband,
RIL could still be worth Rs772/share. Given low net capacity additions
in 2012E, it may be premature to call for a sustained sharp correction
in refining margins. We maintain our OUTPERFORM rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Our RIL GRM tracker is down US$3/bbl QoQ QTD. Spot margins are
US$5.6/bbl lower than 2Q. This is worse than the Reuters Singapore
benchmark, or most other Asian refiners that have benefitted from
FO/middle distillate cracks (and are marginally down QTD).
● We estimate c.US$1.5/bbl of this decline is due to crude dynamics,
with light-heavy differentials falling (AL-AH down US$0.2/bbl and
Dubai-Maya down US$1.4/bbl QTD). RIL’s actual crude diet in 2Q
and its sourcing ability may affect this QoQ calculation though.
● Gasoline cracks have not sustained at the current low levels for long
for the past several years, and may improve near term. Diesel may
strengthen further as the winter demand plays out. RIL GRM may
end the quarter better than the current weak spot estimates. The
depreciation of the rupee should help segment EBIT as well.
● At 6.5x EV/EBITDA (Asian average), a US$8/bbl FY13E GRM would
imply a Rs175/share cut to our NAV estimate. Without including any
E&P upside, or valuations for shale and broadband, RIL could still be
worth Rs772/share. With low capacity additions in 2012E, it may be
premature to expect a sustained sharp correction in refining margins.
RIL refining margins in a weak spot
Our RIL refining margin tracker is down US$3/bbl QoQ QTD in 3Q FY12.
Spot margins are US$5.6/bbl below the 2Q average. Gasoline cracks
have fallen US$2.6/bbl QoQ (on seasonally weak demand and the
restart of regional refining capacity) while naphtha cracks have
deteriorated by another US$6.4/bbl (on weak petchem demand). Spot
diesel cracks are up US$3.4/bbl (seasonal strength on winter demand),
but are still flat on a QTD basis. RIL’s margin is so far tracking worse
than the Reuters’ Singapore complex benchmark and that for other
Asian refiners (down only marginally QoQ), which have benefitted from
higher Fuel Oil/Jet Kero cracks. FO cracks are up US$3.7/bbl QTD on
strong East Asian demand and supply constraints, although these have
come off a little recently. LPG cracks are US$2.6/bbl lower as well.
As much due to crude variances
Of the US$3/bbl QTD margin decline, about US$1.5/bbl is due to specific
crude price changes. The heavier crude grade benchmarks (Arab
Heavy/Maya, on which our tracker is based) have been stronger than the
lighter Dubai—which serves to reduce RIL’s complexity benefit. This
could also cloud near-term margin estimates, as it will be impacted by:
(1) RIL’s ability to source crude (which has previously been cited as a
company strength), and (2) the specific crude diet now, and in 2Q12.
RIL may also have (1) some (though not much) product flexibility and (2)
product price hedges—that can affect reported margins. 8% QTD QoQ
depreciation of the rupee should help refining segment EBIT as well.
Hoping for a bounce
Other than during the crisis, gasoline cracks have not sustained at the
current low levels for an extended period for the past eight years (cracks
were low before 2003—at lower oil price levels). Diesel margins may
strengthen on seasonal demand, helping RIL GRM near term.
At 6.5x EV/EBITDA (Asian refining average), a US$8/bbl FY13E GRM
would imply a Rs175/share cut to our RIL NAV estimate. Without
including any E&P upside, or valuations for US shale and broadband,
RIL could still be worth Rs772/share. Given low net capacity additions
in 2012E, it may be premature to call for a sustained sharp correction
in refining margins. We maintain our OUTPERFORM rating.
No comments:
Post a Comment