COMPANY UPDATE
Reliance Industries (RELI.BO)
Buy Equity Research
Above expectation on other income; E&P, Capex outlook positive
What's changed
Reliance Industries (RIL) reported 1QFY14 PAT of Rs53.5bn, slightly higher than
Bloomberg consensus/GSe of Rs52.7/52.9bn, primarily due to higher than
expected other income (Rs25bn vs GSe of Rs22bn). Gross refining margin at
US$8.4/bbl was in line with our estimate, while petchem margins were slightly
lower than our estimates. Our key takeaways from the earnings meeting are: 1)
RIL management sounded more positive on the E&P outlook and regulatory
environment and is expecting the approvals for R Series fields in the next few
weeks. 2) Management indicated that all the major expansion projects are on
track with the two major projects - Petcoke gasification and refinery off gas
cracker (ROGC) – and expects them to be completed by mid-2015 as planned,
which is earlier than our expectation of 2HFY16. 3) Forex loss was Rs3.3bn on
interest expense and Rs53bn related to project-related LT debt was capitalized.
Implications
With the gas price hike announcement, faster E&P project approvals by govt
and the recent MJ-1 discovery, we think RIL management’s confidence in its
E&P business is increasing. We believe the effective implementation of the gas
price hike decision could help RIL ramp up KG-D6 gas production to a peak level
of about 50 mmscmd by FY17-18. Also, the new ventures of US Shale and
Domestic Retail are growing faster than we expected with US Shale EBITDA at
more than 10% of total and Retail revenues growing at more than 50% yoy. As
discussed in our August 16, 2012 report “Core capex to lift returns, rerate stock;
roadmap to US$100bn mkt cap. Buy”, we continue to believe that RIL’s major
capex in core segments will lead to a structural rise in its margins and cash
returns (+200 bps) over the medium term. This should re-rate the stock, in our
view, and pave the way for a near-doubling of earnings by FY17.
Valuation
We maintain our Buy rating and 12-month SOTP-based TP of Rs1,085.
Key risks
Low refining margin; further weakness in petchem margins.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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Reliance Industries (RELI.BO)
Buy Equity Research
Above expectation on other income; E&P, Capex outlook positive
What's changed
Reliance Industries (RIL) reported 1QFY14 PAT of Rs53.5bn, slightly higher than
Bloomberg consensus/GSe of Rs52.7/52.9bn, primarily due to higher than
expected other income (Rs25bn vs GSe of Rs22bn). Gross refining margin at
US$8.4/bbl was in line with our estimate, while petchem margins were slightly
lower than our estimates. Our key takeaways from the earnings meeting are: 1)
RIL management sounded more positive on the E&P outlook and regulatory
environment and is expecting the approvals for R Series fields in the next few
weeks. 2) Management indicated that all the major expansion projects are on
track with the two major projects - Petcoke gasification and refinery off gas
cracker (ROGC) – and expects them to be completed by mid-2015 as planned,
which is earlier than our expectation of 2HFY16. 3) Forex loss was Rs3.3bn on
interest expense and Rs53bn related to project-related LT debt was capitalized.
Implications
With the gas price hike announcement, faster E&P project approvals by govt
and the recent MJ-1 discovery, we think RIL management’s confidence in its
E&P business is increasing. We believe the effective implementation of the gas
price hike decision could help RIL ramp up KG-D6 gas production to a peak level
of about 50 mmscmd by FY17-18. Also, the new ventures of US Shale and
Domestic Retail are growing faster than we expected with US Shale EBITDA at
more than 10% of total and Retail revenues growing at more than 50% yoy. As
discussed in our August 16, 2012 report “Core capex to lift returns, rerate stock;
roadmap to US$100bn mkt cap. Buy”, we continue to believe that RIL’s major
capex in core segments will lead to a structural rise in its margins and cash
returns (+200 bps) over the medium term. This should re-rate the stock, in our
view, and pave the way for a near-doubling of earnings by FY17.
Valuation
We maintain our Buy rating and 12-month SOTP-based TP of Rs1,085.
Key risks
Low refining margin; further weakness in petchem margins.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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