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Reliance Industries (RELI.BO)
1Q: No Surprises – Refining, E&P In Line; Petchem Weak
In line quarter — RIL’s 1Q PAT of Rs56.6bn (+17% yoy, +5% qoq) was in line with our
and consensus estimates. Operating profits were slightly below expectations on
account of a weaker than expected petchem quarter, though refining (US$10.3 GRM)
and E&P (49 mmscmd production) were largely in line, and together with lower interest
cost and higher other income, led to in line performance at the PAT level. We adjust our
earnings modestly and reduce our TP to Rs1,082 (from Rs1,115).
Refining – boosted by throughput — Reliance’s GRMs of US$10.3 were below
expectations, with the premium to Singapore margins remaining largely flat on a
sequential basis at US$1.7. As per mgmt, this was driven by a combination of high
prices of Brent-linked crude grades, increased usage of high-cost LNG (D6 gas
consumption has been negligible w.e.f. May following the govt’s directive), decline in
naphtha spreads (Asian cracker outages), and weakness in margins of solids (petcoke
and sulphur). This was, however, almost completely offset by high throughput, which
touched a record of 17 MMT, bringing overall segmental profitability in line with
expectations. Refining contributed 46% of overall EBIT for the qtr vs. 34% in 1QFY11.
Petchem – impacted by weak domestic environment — The petchem segment
witnessed a weaker than expected quarter (EBIT -16% qoq), with domestic demand
being impacted by destocking by end users due to price volatility. Besides weaker
spreads, demand for polymers (-4%) and polyesters (-5%) was also down yoy, though
RIL managed to increase overall volumes on the back of shift toward export markets.
E&P – production at 49 mmscmd; ramp-up could take 2-3 years — RIL has
identified 3 locations in D1, D3 for drilling new wells, and is awaiting gov’t approval,
following which it can commence tendering activities. Together with the 2 unconnected
wells in D1, D3 (18 out of 20 drilled wells are producing), the company plans to connect
all 5 together as a cluster; this could, however, take c2-3 yrs to complete as per mgmt,
and in the interim, production is unlikely to rise. Budget for workover of producing wells,
which is critical to stem the natural decline, has not yet been approved.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries (RELI.BO)
1Q: No Surprises – Refining, E&P In Line; Petchem Weak
In line quarter — RIL’s 1Q PAT of Rs56.6bn (+17% yoy, +5% qoq) was in line with our
and consensus estimates. Operating profits were slightly below expectations on
account of a weaker than expected petchem quarter, though refining (US$10.3 GRM)
and E&P (49 mmscmd production) were largely in line, and together with lower interest
cost and higher other income, led to in line performance at the PAT level. We adjust our
earnings modestly and reduce our TP to Rs1,082 (from Rs1,115).
Refining – boosted by throughput — Reliance’s GRMs of US$10.3 were below
expectations, with the premium to Singapore margins remaining largely flat on a
sequential basis at US$1.7. As per mgmt, this was driven by a combination of high
prices of Brent-linked crude grades, increased usage of high-cost LNG (D6 gas
consumption has been negligible w.e.f. May following the govt’s directive), decline in
naphtha spreads (Asian cracker outages), and weakness in margins of solids (petcoke
and sulphur). This was, however, almost completely offset by high throughput, which
touched a record of 17 MMT, bringing overall segmental profitability in line with
expectations. Refining contributed 46% of overall EBIT for the qtr vs. 34% in 1QFY11.
Petchem – impacted by weak domestic environment — The petchem segment
witnessed a weaker than expected quarter (EBIT -16% qoq), with domestic demand
being impacted by destocking by end users due to price volatility. Besides weaker
spreads, demand for polymers (-4%) and polyesters (-5%) was also down yoy, though
RIL managed to increase overall volumes on the back of shift toward export markets.
E&P – production at 49 mmscmd; ramp-up could take 2-3 years — RIL has
identified 3 locations in D1, D3 for drilling new wells, and is awaiting gov’t approval,
following which it can commence tendering activities. Together with the 2 unconnected
wells in D1, D3 (18 out of 20 drilled wells are producing), the company plans to connect
all 5 together as a cluster; this could, however, take c2-3 yrs to complete as per mgmt,
and in the interim, production is unlikely to rise. Budget for workover of producing wells,
which is critical to stem the natural decline, has not yet been approved.
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