Reliance Industries (RELI.BO)
1Q: Repeat of 4Q Trends; Operationally Muted, Headline In-line
4Q déjà vu; operationally muted1Q, higher other income — PAT of Rs53.5bn was
in-line, though in a near repeat of 4Q, was largely supported by higher other income
(rose even further to Rs25.3bn; ~34% of EBIT vs. ~27% in FY13), while overall
EBITDA fell 10% qoq. Operational weakness continued, with flat petchem profitability, a
continued decline in KG gas (15 mmscmd), and lower GRMs ($8.4 vs. $10.1 in 4Q).
Refining in-line, petchem disappoints again — GRMs in-line (at a premium to Sing.
GRMs of $6.5), as cracks weakened seasonally and L-H spreads narrowed, though
partly offset by higher throughput qoq (17.1 MMT; 4Q impacted by a shutdown).
Petchem, however, disappointed, with strong PE and PET margins being offset by
weak PX, MEG, and BD cracks, leading to sequentially flat EBIT.
E&P updates and other analyst meet takeaways — (1) All pending approvals for
producing fields (D1,D3,MA) have been received ($1.2bn capex approved for FY14),
though no major boost in vols is expected and stabilisation may take c12-18 mths; (2)
2-3 well appraisal prog. for MJ-1 discovery to be submitted shortly and to commence in
2HFY14; (3) R-series FDP approval expected in c2-3 mths; production from all new
fields (satellite, R-series, MJ-1) targeted for FY18; (4) NEC-25 FDP approval has been
delayed; (5) ROGC and petcoke gasifier on schedule for mid-CY15 commissioning; (6)
Shale EBITDA rose to $165m (+6% qoq), though capital employed rose to $6.0bn; (7)
INR depreciation is favourable, though LT $ borrowings partly act as a natural hedge.
Maintain Neutral — We raise our FY14/15E earnings 6/5% to factor in changes to our
currency assumptions, partly offset by lower KG gas volumes and a delayed petchem
recovery. Our GRMs remain unchanged at $9.0/8.5. Given the recent run-up in the
stock (+17% in 3M) on the back of the weaker rupee, seasonally strong GRMs, and the
gas price hike announcement, valns at ~12/11x P/E and ~1.3/1.2x P/B are no more
compelling. In addition, E&P volume recovery will be protracted notwithstanding the
much-anticipated gas price hike, while refining is at its seasonal peak with margins in
Europe already buckling, and near-term earnings growth remains subdued barring the
rupee weakness persisting/worsening. Reiterate Neutral, new TP Rs988.
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1Q: Repeat of 4Q Trends; Operationally Muted, Headline In-line
4Q déjà vu; operationally muted1Q, higher other income — PAT of Rs53.5bn was
in-line, though in a near repeat of 4Q, was largely supported by higher other income
(rose even further to Rs25.3bn; ~34% of EBIT vs. ~27% in FY13), while overall
EBITDA fell 10% qoq. Operational weakness continued, with flat petchem profitability, a
continued decline in KG gas (15 mmscmd), and lower GRMs ($8.4 vs. $10.1 in 4Q).
Refining in-line, petchem disappoints again — GRMs in-line (at a premium to Sing.
GRMs of $6.5), as cracks weakened seasonally and L-H spreads narrowed, though
partly offset by higher throughput qoq (17.1 MMT; 4Q impacted by a shutdown).
Petchem, however, disappointed, with strong PE and PET margins being offset by
weak PX, MEG, and BD cracks, leading to sequentially flat EBIT.
E&P updates and other analyst meet takeaways — (1) All pending approvals for
producing fields (D1,D3,MA) have been received ($1.2bn capex approved for FY14),
though no major boost in vols is expected and stabilisation may take c12-18 mths; (2)
2-3 well appraisal prog. for MJ-1 discovery to be submitted shortly and to commence in
2HFY14; (3) R-series FDP approval expected in c2-3 mths; production from all new
fields (satellite, R-series, MJ-1) targeted for FY18; (4) NEC-25 FDP approval has been
delayed; (5) ROGC and petcoke gasifier on schedule for mid-CY15 commissioning; (6)
Shale EBITDA rose to $165m (+6% qoq), though capital employed rose to $6.0bn; (7)
INR depreciation is favourable, though LT $ borrowings partly act as a natural hedge.
Maintain Neutral — We raise our FY14/15E earnings 6/5% to factor in changes to our
currency assumptions, partly offset by lower KG gas volumes and a delayed petchem
recovery. Our GRMs remain unchanged at $9.0/8.5. Given the recent run-up in the
stock (+17% in 3M) on the back of the weaker rupee, seasonally strong GRMs, and the
gas price hike announcement, valns at ~12/11x P/E and ~1.3/1.2x P/B are no more
compelling. In addition, E&P volume recovery will be protracted notwithstanding the
much-anticipated gas price hike, while refining is at its seasonal peak with margins in
Europe already buckling, and near-term earnings growth remains subdued barring the
rupee weakness persisting/worsening. Reiterate Neutral, new TP Rs988.
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