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Reliance Industries (RIL)
Energy
Buy-back program details a pleasant surprise, results not so. RIL reported lower
3QFY12 net income at `44.4 bn (-22.1% qoq and -13.6% yoy) versus our estimate of
`47 bn. The weak results reflect (1) sharp decline in refining margins, (2) lower
production from KG D-6 block and (3) weak performance of the chemical segment.
RIL’s Board has approved a buy-back program of up to 120 mn shares at a price of up
to `870/share. We retain our BUY rating and 12-month SOTP-based target price of
`925/share for RIL.
22.1% qoq decline in net income, 26% qoq decline in EBITDA
RIL reported sharply lower net income at `44 bn versus `57 bn in 2QFY12; our estimate was `47
bn. RIL’s 3QFY12 EBITDA declined 26% qoq and 23.7% yoy to `72.9 bn led by (1) lower refining
margins at US$6.8/bbl (–US$3.3/bbl qoq and –US$2.2/bbl yoy), (2) lower production from KG D-6
block and (3) weaker performance of the chemical segment. We note that the operational results
were helped to some extent by a weaker Rupee at `51/US$ versus `45.8/US$ in 2QFY12. A sharp
increase in other income (+56% qoq, +132% yoy) offset weak operating performance.
Qoq decline in EBIT across all segments
3QFY12 chemical segment EBIT declined 10.9% qoq to `21.6 bn reflecting (1) lower margins and
(2) likely lower polyester sales volumes. RIL‘s refining segment EBIT declined by 45.2% qoq to
`16.9 bn led by sharply lower refining margins at US$6.8/bbl (–US$3.3/bbl qoq). Crude
throughput increased to 17.3 mn tons (+0.2 mn tons qoq). E&P segment EBIT declined 15.5% qoq
to `12.9 bn led by (1) lower production from KG-D6 block and (2) lower share of production post
the completion of RIL-BP transaction. KG D-6 gas production (gross basis) was lower at 40.9
mcm/d in 3QFY12 versus 45.3 mcm/d in 2QFY12 and 54.5 mcm/d in 3QFY11.
Sizable buy-back program will likely provide support to stock price
RIL’s Board approved a buy-back program of up to 120 mn shares at a price of up to `870/share
resulting in a maximum consideration of `104.4 bn. We view this is as a positive step, in that it
shows the management’s intention to return cash to shareholders. The buy-back program will also
provide a floor of `800-825, in our view. The ADVT for RIL stock is 5.2 mn shares.
Retain BUY and TP; cut earnings for FY2012-14E
We retain our BUY rating and 12-month SOTP-based TP of `925. We have cut our FY2012-14E
EPS to `64, `68 and `69 from `70, `76 and `77 previously to reflect (1) 3QFY12 results, (2) lower
margins for refining and petchem segments, (3) lower KG D-6 production and (4) other minor
changes. We note that higher cash balance (lower capex) and use of modestly higher multiples
(lower/mid-cycle margins assumed now) offset the impact of lower EBITDA in our SOTP-based
valuation model.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries (RIL)
Energy
Buy-back program details a pleasant surprise, results not so. RIL reported lower
3QFY12 net income at `44.4 bn (-22.1% qoq and -13.6% yoy) versus our estimate of
`47 bn. The weak results reflect (1) sharp decline in refining margins, (2) lower
production from KG D-6 block and (3) weak performance of the chemical segment.
RIL’s Board has approved a buy-back program of up to 120 mn shares at a price of up
to `870/share. We retain our BUY rating and 12-month SOTP-based target price of
`925/share for RIL.
22.1% qoq decline in net income, 26% qoq decline in EBITDA
RIL reported sharply lower net income at `44 bn versus `57 bn in 2QFY12; our estimate was `47
bn. RIL’s 3QFY12 EBITDA declined 26% qoq and 23.7% yoy to `72.9 bn led by (1) lower refining
margins at US$6.8/bbl (–US$3.3/bbl qoq and –US$2.2/bbl yoy), (2) lower production from KG D-6
block and (3) weaker performance of the chemical segment. We note that the operational results
were helped to some extent by a weaker Rupee at `51/US$ versus `45.8/US$ in 2QFY12. A sharp
increase in other income (+56% qoq, +132% yoy) offset weak operating performance.
Qoq decline in EBIT across all segments
3QFY12 chemical segment EBIT declined 10.9% qoq to `21.6 bn reflecting (1) lower margins and
(2) likely lower polyester sales volumes. RIL‘s refining segment EBIT declined by 45.2% qoq to
`16.9 bn led by sharply lower refining margins at US$6.8/bbl (–US$3.3/bbl qoq). Crude
throughput increased to 17.3 mn tons (+0.2 mn tons qoq). E&P segment EBIT declined 15.5% qoq
to `12.9 bn led by (1) lower production from KG-D6 block and (2) lower share of production post
the completion of RIL-BP transaction. KG D-6 gas production (gross basis) was lower at 40.9
mcm/d in 3QFY12 versus 45.3 mcm/d in 2QFY12 and 54.5 mcm/d in 3QFY11.
Sizable buy-back program will likely provide support to stock price
RIL’s Board approved a buy-back program of up to 120 mn shares at a price of up to `870/share
resulting in a maximum consideration of `104.4 bn. We view this is as a positive step, in that it
shows the management’s intention to return cash to shareholders. The buy-back program will also
provide a floor of `800-825, in our view. The ADVT for RIL stock is 5.2 mn shares.
Retain BUY and TP; cut earnings for FY2012-14E
We retain our BUY rating and 12-month SOTP-based TP of `925. We have cut our FY2012-14E
EPS to `64, `68 and `69 from `70, `76 and `77 previously to reflect (1) 3QFY12 results, (2) lower
margins for refining and petchem segments, (3) lower KG D-6 production and (4) other minor
changes. We note that higher cash balance (lower capex) and use of modestly higher multiples
(lower/mid-cycle margins assumed now) offset the impact of lower EBITDA in our SOTP-based
valuation model.
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