Reliance Industries - Crude Impact!; Result Update Q3FY15 :: Edelweiss, report

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Reliance Industries (RIL) reported consol. PAT of INR52.56bn (-4.5% YoY, -12% QoQ) for Q3FY15, in line with our forecast. GRMs fell by USD1/bbl QoQ to USD7.3/bbl as L-H oil spreads declined. While polymer margins improved, a major shutdown hurt petchem volumes. Higher retail profits partially offset the plunge in shale liquid price. We lower SOTP-based TP by 4% to INR1,110 as oil price fall will hurt upcoming petcoke gasification/cracker profitability.

Lower L-H crude spread hurts GRMs; refining EBIT falls 15%

Singapore GRMs rose by USD1.5/bbl QoQ to USD6.3/bbl, but RIL’s GRMs fell by USD1.0/bbl to USD7.3/bbl, as the company’s highly complex refinery was hit by the fall in L-H crude oil spreads by USD0.8/bbl. RIL restarted retailing diesel domestically at  230 of its gas stations, following recent deregulation. The company plans to restart all its 1,400 pumps over 1 year. Although petcoke gasification project margins will be lower due to fall in crude prices, management believes economics remain favourable.

Shutdown impacts petrochem EBIT by 13%

Polymer/cracker and polyester margins were strong, but partially hit by fall in aromatic (Px, PTA) margins. A 1 month planned shutdown of its mammoth Hazira cracker impacted volumes, RIL’s massive petchem start-ups are likely to coincide with a forecast domestic demand revival into FY16. Global consultant, IHS, also forecast 100bps rise in utilisation rates to 88% as capacity start-ups get delayed.

Shale hurts, while KG-D6 benefits from higher gas prices

RIL’s shale EBITA fell 14% QoO. While volumes rose 5% QoQ, prices fell by 19%. Even though the company’s production costs are amongst the lowest, it intends cutting capex by 30-40% due to the oil price crash. RIL took credit for the ~30% domestic gas price hike, but reflected the same in receivables till arbitration with the government is completed. Organised retailing EBIT gained 34% as like-for-like store sales moved up 19% YoY.

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https://www.edelweiss.in/research/Braveheart-Series-Reliance-Industries--Crude-Impact-;-Result-Update-Q3FY15/28056.html