RIL - Buy - Q3FY12 Result Update/Estimate Change - Legacy businesses under pressure; share buyback - a positive ::Centrum

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Q3FY12 Result Update/Estimate Change

RIL

Buy

Target Price: Rs913

CMP: Rs772

Upside: 18.4%

Legacy businesses under pressure; share buyback - a positive

Although RIL reported weak Q3FY12 numbers, it complemented it with a positive move of share buyback to the extent of over Rs104bn (maximum of 120mn shares). GRMs remained weak at US$6.8/bbl lower than benchmark Reuters Singapore complex GRMs of US$7.9/bbl, petrochemical demand in the domestic market remained under pressure and KG D6 gas production declined further to average 41mmscmd. Effectively, PAT declined to Rs44.4bn against Rs51.4bn in Q3FY11 and Rs57.1bn in Q2FY12.

m  GRMs at a discount to benchmark: RIL’s GRMs declined sequentially to US$6.8/bbl from US$10.1/bbl due to a spate of factors like weak gasoline cracks, naphtha cracks remaining under pressure due to weak petchem demand, narrowing Arab light-heavy differentials, weak solids prices of sulphur and petcoke among others. With revival in gasoline cracks, Q4 is likely to be better than Q3. However, major improvement is expected only in Q1FY13 with the start of the US driving season which will boost gasoline demand and cracks.

m  Domestic petchem demand under pressure: Although, petchem volumes remained buoyant, the domestic petchem demand remained under pressure with flattish QoQ polymer demand due to higher interest rates and lower consumption and decline in polyester demand due to volatility in cotton prices. Petchem demand is likely to remain under pressure for the time being.

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