RIL’s Q2FY13 PAT at INR53.8bn was in line with the estimated INR53.9bn
and higher by 20% QoQ due to better refining margins and flat petchem
EBIT. GRMs for Q2FY13 at USD9.5/bbl were in-line with our estimates. RIL
is awaiting MC approval for revised FDP for D1/D3 to augment
production, and plans to submit the Integrated Development Plan for the
satellite fields by December 2012. Our anti-consensus call on RIL initiated
as part of the ‘Braveheart Series,’ when the stock was at INR719 is playing
out. We see the strength in GRMs to persist as refinery closures offset new
capacities. Further, bottoming out of petchem margins, strong shale gas
production (27% QoQ, 7% of EBITDA) and progress in core capex support
our call of EBITDA doubling in 5 years. Reiterate ‘BUY’ with a TP of INR906.
Upstream growth from integrated field development, US shale
Upstream EBITDA at INR15.5bn was lower than the INR17.2bn estimate due to lower
production and earnings in PMT. KG-D6 production was 28.5 mmscmd (in line with
est), down 11% QoQ and 41% YoY. RIL has submitted revised FDP for producing D1/D3
fields in August and expects to augment production. It plans to submit the Integrated
Development Plan for satellite fields by Dec’12. Investment in US shale (USD4.8bn so
far) is bearing fruit (production up 27% QoQ to 8.8 mmscmd and revenues/EBITDA of
USD119/102mn - likely to exceed our FY13 estimate of USD358mn).
GRMs of USD9.5/bbl boost refining
Refining EBITDA at INR46.3bn was in line, with GRMs boosted by temporary refinery
shutdowns (our channel checks make us believe that tightness will persist) and usage
of API 26 crude. Petchem EBITDA at INR21.6bn was better than INR20.1bn est. as
margins are close to bottoming out.
Outlook and valuations: Growth from non-regulated segments; ‘BUY’
We expect RIL’s EBITDA to double over the next five years with 90% of the incremental
growth from non-regulated segments of refining, petchem and shale gas. Of the
estimated USD33bn in operating cash flow over FY13-17E, we see capex of USD28bn in
core segments reviving growth and RoEs. Key triggers include global refinery closures,
petchem margins at long cycle troughs, rise in US gas prices and approval of upstream
development plans. Maintain ‘BUY’ with a TP of INR906.
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