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Reliance Industries (RELI.BO)
Neutral Equity Research
1Q in line; cutting EPS,TP on lower volumes, margin outlook
What's changed
1QFY12 PAT of Rs56.6bn was up 17% yoy, in line with our expectations but
slightly below Bloomberg consensus estimate of Rs57.2bn, as better-thanexpected other income and interest expenses offset weaker-than-expected
petrochem margins. While refining margin of US$10.3/bbl was slightly
better than our estimate, it was lower than the Singapore complex refining
margin for the third consecutive quarter. E&P results were broadly in line
with our estimate, but KG-D6 volumes declined 18% yoy and 3% qoq.
Implications
We remain concerned about E&P owing to a lack of clarity on D-6
production ramp-up and slow progress in exploration acreage. While the
RIL-BP deal approval provides RIL access to BP’s deepwater expertise,
likely helping grow volumes at the D6 block and potentially accelerating
the exploration and development of its other fields, we believe that
production ramp-up at D-6 may materialize only by end FY14E. RIL has a
cash balance of US$10.2bn as of end-1QFY12, which could further increase
with the US$5.2bn payment from BP in the coming quarters. While we
believe the cash could add to RIL’s issues with its deployment and clarity
regarding return profiles of new investments, we also believe any special
dividend payout or share buyback would help the stock.
Valuation
We remain Neutral on RIL and revise our 12-month, SOTP-based, TP to
Rs1,000 from Rs1,070, implying potential upside of 13%. This is in line with
our revision to our FY12E/FY13E/FY14E EPS to Rs70.48/Rs77.88/Rs82.01
from Rs75.63/Rs85.53/Rs90.99 to reflect lower KG-D6 gas volumes and
lower gross refining margins going forward.
Key risks
Downside: weak refining margin, low petrochemical margins. Upside:
faster-than-expected KG-D6 ramp-up.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries (RELI.BO)
Neutral Equity Research
1Q in line; cutting EPS,TP on lower volumes, margin outlook
What's changed
1QFY12 PAT of Rs56.6bn was up 17% yoy, in line with our expectations but
slightly below Bloomberg consensus estimate of Rs57.2bn, as better-thanexpected other income and interest expenses offset weaker-than-expected
petrochem margins. While refining margin of US$10.3/bbl was slightly
better than our estimate, it was lower than the Singapore complex refining
margin for the third consecutive quarter. E&P results were broadly in line
with our estimate, but KG-D6 volumes declined 18% yoy and 3% qoq.
Implications
We remain concerned about E&P owing to a lack of clarity on D-6
production ramp-up and slow progress in exploration acreage. While the
RIL-BP deal approval provides RIL access to BP’s deepwater expertise,
likely helping grow volumes at the D6 block and potentially accelerating
the exploration and development of its other fields, we believe that
production ramp-up at D-6 may materialize only by end FY14E. RIL has a
cash balance of US$10.2bn as of end-1QFY12, which could further increase
with the US$5.2bn payment from BP in the coming quarters. While we
believe the cash could add to RIL’s issues with its deployment and clarity
regarding return profiles of new investments, we also believe any special
dividend payout or share buyback would help the stock.
Valuation
We remain Neutral on RIL and revise our 12-month, SOTP-based, TP to
Rs1,000 from Rs1,070, implying potential upside of 13%. This is in line with
our revision to our FY12E/FY13E/FY14E EPS to Rs70.48/Rs77.88/Rs82.01
from Rs75.63/Rs85.53/Rs90.99 to reflect lower KG-D6 gas volumes and
lower gross refining margins going forward.
Key risks
Downside: weak refining margin, low petrochemical margins. Upside:
faster-than-expected KG-D6 ramp-up.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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