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1QFY12 results were in line, though recent GRM trends are a worry. The main impact of the CAG
audit would be to further delay the approval process and consequent gas production upside,
thereby lowering E&P value. We maintain Hold, but lower our TP from Rs985 to Rs925.
1QFY12 net profit in line, GRM trend worrying
RIL reported an in-line net profit of Rs56.6bn (up 17% yoy) with KG-D6 gross gas production at
approximately 48.1mmscmd and gross refinery margin (GRM) of US$10.3/bbl. Key drivers for RIL
margins (transportation fuel margins, crude differentials) in the last two quarters have been close
to the top end of their range, compared with the eight-quarter period 3QFY07-2QFY09 when RIL
reported GRMs in excess of US$10/bbl. Hence, we are not optimistic of any further significant
improvement in GRMs over next three years. Petrochemical margins have weakened (recently in
polymers, following earlier sharp declines across the polyester chain), but we expect recovery in
polymers in 2HFY12.
E&P value lowered
KG-D6 gas production has been sliding with RIL differing with the upstream regulator (DGH) on
timing of new production wells. We have cut our KG-D6 gross gas production forecast to 48-
50mmscmd over FY12-14. We also believe that the draft report of the comptroller and auditor
general (CAG) will cause more delays in getting investment approvals from the Indian
government (GOI). Hence, our production estimate from KGD6 balance fields has been pushed
back from FY15 to FY17 and commercialisation of new finds is likely to remain challenging. We
cut our KG-D6 value from Rs127 to Rs103/RIL share and no longer assume the exploration
upside (Rs76/share) implied by the BP deal valuation.
Maintain Hold, new target price of Rs925
We have cut our SOTP-based target price from Rs985 to Rs925. The lower value for E&P (Rs172
vs Rs273/share earlier) has been partly compensated for by the sharp rise in net cash
(Rs51/share) as we estimate lower capex in E&P and petrochem in FY12/13. We believe the
longer-term concern on capital allocation needs to be allayed as the current portfolio of RIL
projects in its core business appears to be insufficient compared to projected cash balances.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results were in line, though recent GRM trends are a worry. The main impact of the CAG
audit would be to further delay the approval process and consequent gas production upside,
thereby lowering E&P value. We maintain Hold, but lower our TP from Rs985 to Rs925.
1QFY12 net profit in line, GRM trend worrying
RIL reported an in-line net profit of Rs56.6bn (up 17% yoy) with KG-D6 gross gas production at
approximately 48.1mmscmd and gross refinery margin (GRM) of US$10.3/bbl. Key drivers for RIL
margins (transportation fuel margins, crude differentials) in the last two quarters have been close
to the top end of their range, compared with the eight-quarter period 3QFY07-2QFY09 when RIL
reported GRMs in excess of US$10/bbl. Hence, we are not optimistic of any further significant
improvement in GRMs over next three years. Petrochemical margins have weakened (recently in
polymers, following earlier sharp declines across the polyester chain), but we expect recovery in
polymers in 2HFY12.
E&P value lowered
KG-D6 gas production has been sliding with RIL differing with the upstream regulator (DGH) on
timing of new production wells. We have cut our KG-D6 gross gas production forecast to 48-
50mmscmd over FY12-14. We also believe that the draft report of the comptroller and auditor
general (CAG) will cause more delays in getting investment approvals from the Indian
government (GOI). Hence, our production estimate from KGD6 balance fields has been pushed
back from FY15 to FY17 and commercialisation of new finds is likely to remain challenging. We
cut our KG-D6 value from Rs127 to Rs103/RIL share and no longer assume the exploration
upside (Rs76/share) implied by the BP deal valuation.
Maintain Hold, new target price of Rs925
We have cut our SOTP-based target price from Rs985 to Rs925. The lower value for E&P (Rs172
vs Rs273/share earlier) has been partly compensated for by the sharp rise in net cash
(Rs51/share) as we estimate lower capex in E&P and petrochem in FY12/13. We believe the
longer-term concern on capital allocation needs to be allayed as the current portfolio of RIL
projects in its core business appears to be insufficient compared to projected cash balances.
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