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Product spreads have corrected sharply of late, driven by gasoline
spreads in particular. While this may impact refining margins in the
second half of the year, we still see RIL’s GRMs for the full year not falling
below USD 9/bbl. Also, the depreciation in INR will aid RIL’s earnings
given that its businesses are USD denominated. Our sensitivity analysis of
RIL’s EPS to lower refining margins and lower INR suggests a not more
than 0‐3% risk to FY12 and FY13 earnings. We maintain our ‘BUY’ rating
on the stock with a target price of INR 1,148.
Refining margins correct, driven by gasoline
Complex refining margins have seen a sharp correction recently, falling by nearly USD
3/bbl compared to Q2FY12. Restarting of refineries in Singapore and weaker than
expected Asian gasoline demand growth have been the drivers behind this. Diesel
demand remains strong though, rising by about USD 3/bbl compared to Q2FY12.
RIL’s margins will not fall as much
RIL’s GRMs have averaged USD 10.2/bbl in the first half of the year. Our proprietary
model to predict RIL’s margins indicates that complex refining margins have come off
by USD 3/bbl. Having said that, we believe the recent fall in margins is not a strict
indicator of quarterly margins. Moreover, RIL being a diesel‐heavy refiner (~45% diesel
output w/w) is impacted to a lesser extent compared to other global refiners.
INR depreciation will also provide cushion to RIL’s earnings
All of RIL’s business segments (E&P, refining and petrochemicals) are USD
denominated. Our sensitivity analysis indicates that a 1% fall in INR will lead to a 1.5%
rise in FY12 and FY13 EPS. We see low risk to RIL’s FY12/13 consensus earnings
and stress case GRMs may lead to a not more than 0‐3% cut in FY12 and FY13 EPS. We
maintain our BUY rating on the stock with a target price of INR1,148. At INR 810, the
stock is trading at 11.3x FY12 earnings and 10.5x FY13 earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Product spreads have corrected sharply of late, driven by gasoline
spreads in particular. While this may impact refining margins in the
second half of the year, we still see RIL’s GRMs for the full year not falling
below USD 9/bbl. Also, the depreciation in INR will aid RIL’s earnings
given that its businesses are USD denominated. Our sensitivity analysis of
RIL’s EPS to lower refining margins and lower INR suggests a not more
than 0‐3% risk to FY12 and FY13 earnings. We maintain our ‘BUY’ rating
on the stock with a target price of INR 1,148.
Refining margins correct, driven by gasoline
Complex refining margins have seen a sharp correction recently, falling by nearly USD
3/bbl compared to Q2FY12. Restarting of refineries in Singapore and weaker than
expected Asian gasoline demand growth have been the drivers behind this. Diesel
demand remains strong though, rising by about USD 3/bbl compared to Q2FY12.
RIL’s margins will not fall as much
RIL’s GRMs have averaged USD 10.2/bbl in the first half of the year. Our proprietary
model to predict RIL’s margins indicates that complex refining margins have come off
by USD 3/bbl. Having said that, we believe the recent fall in margins is not a strict
indicator of quarterly margins. Moreover, RIL being a diesel‐heavy refiner (~45% diesel
output w/w) is impacted to a lesser extent compared to other global refiners.
INR depreciation will also provide cushion to RIL’s earnings
All of RIL’s business segments (E&P, refining and petrochemicals) are USD
denominated. Our sensitivity analysis indicates that a 1% fall in INR will lead to a 1.5%
rise in FY12 and FY13 EPS. We see low risk to RIL’s FY12/13 consensus earnings
and stress case GRMs may lead to a not more than 0‐3% cut in FY12 and FY13 EPS. We
maintain our BUY rating on the stock with a target price of INR1,148. At INR 810, the
stock is trading at 11.3x FY12 earnings and 10.5x FY13 earnings.
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