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E&P talk hints at downside
§ Refining segment performs inline with GRMs at USD10.3/bbl
§ Petchem: LNG costs, low demand results in weak margins
§ E&P will continue to languish, new wells to take atleast two yrs
§ Expect weakness on back of Q1FY12 earnings
Event
RIL reported standalone EBITDA at
INR99.3b (flat q-q), inline with our
expectations. Refining segment saw
blended refining margins (GRMs) at
USD10.3/bbl, inline with our expectations,
driven by strong middle distillate and lightheavy
spreads. Petrochemical segment
disappointed with EBIT margins dropping
to 12.1% vs. 14.4% q-q, mainly owing to
lower demand, as crude linked high
naphtha costs has resulted in price
volatility for end consumer segments. KGD
6 gas production was down as
expected, with D1/D3/MA associated gas
production at 49mmscmd (-4% q-q). MA oil + condensate production at
17,800bpd was higher 7% q-q. RIL reported an overall inline standalone
recurring profit at INR56.6b (+5% q-q), with higher than expected other
income at INR10.8b compensated by a higher tax rate at 22%.
Comment
E&P: Management provided guidance that KG-D6 production might not
significantly ramp up, as RIL would like to drill a cluster of wells and then
start connecting them to make it more cost efficient. Management
indicated that it would take 18-24 months at least for well connection. RIL
does not expect the impact of CAG to be very meaningful, but did accept
that the GoI is taking a very conservative view against RIL, which is
delaying its E&P plans. Refining: RIL reported its highest ever utilization
at 110%; however complex refiners may not expect major upswing in
GRMs owing to light distillate margins cooling off and pressure on solids
like petcoke and sulphur (~10% slate). Petrochemicals: RIL expects
tight butadiene market will drive chemical margins, and has committed
USD10bn capex for doubling polyester capacity in the next 3-4 years.
Expect weakness, E&P will bring earnings cuts
The quarter results once again highlighted that growth is slowing and we
also expect further earnings cuts as street adjusts for potential lack of
increase in production at KG-D6 over the next 18-24 months.
Petrochemical weakness disposes super-cycle expectations. We expect
the shares to correct and would be buyers on dips and continue to view
RIL as a defensive in choppy markets. We reiterate our BUY with an
unchanged TP of INR965/sh. Risks: Further reserve downgrades.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
E&P talk hints at downside
§ Refining segment performs inline with GRMs at USD10.3/bbl
§ Petchem: LNG costs, low demand results in weak margins
§ E&P will continue to languish, new wells to take atleast two yrs
§ Expect weakness on back of Q1FY12 earnings
Event
RIL reported standalone EBITDA at
INR99.3b (flat q-q), inline with our
expectations. Refining segment saw
blended refining margins (GRMs) at
USD10.3/bbl, inline with our expectations,
driven by strong middle distillate and lightheavy
spreads. Petrochemical segment
disappointed with EBIT margins dropping
to 12.1% vs. 14.4% q-q, mainly owing to
lower demand, as crude linked high
naphtha costs has resulted in price
volatility for end consumer segments. KGD
6 gas production was down as
expected, with D1/D3/MA associated gas
production at 49mmscmd (-4% q-q). MA oil + condensate production at
17,800bpd was higher 7% q-q. RIL reported an overall inline standalone
recurring profit at INR56.6b (+5% q-q), with higher than expected other
income at INR10.8b compensated by a higher tax rate at 22%.
Comment
E&P: Management provided guidance that KG-D6 production might not
significantly ramp up, as RIL would like to drill a cluster of wells and then
start connecting them to make it more cost efficient. Management
indicated that it would take 18-24 months at least for well connection. RIL
does not expect the impact of CAG to be very meaningful, but did accept
that the GoI is taking a very conservative view against RIL, which is
delaying its E&P plans. Refining: RIL reported its highest ever utilization
at 110%; however complex refiners may not expect major upswing in
GRMs owing to light distillate margins cooling off and pressure on solids
like petcoke and sulphur (~10% slate). Petrochemicals: RIL expects
tight butadiene market will drive chemical margins, and has committed
USD10bn capex for doubling polyester capacity in the next 3-4 years.
Expect weakness, E&P will bring earnings cuts
The quarter results once again highlighted that growth is slowing and we
also expect further earnings cuts as street adjusts for potential lack of
increase in production at KG-D6 over the next 18-24 months.
Petrochemical weakness disposes super-cycle expectations. We expect
the shares to correct and would be buyers on dips and continue to view
RIL as a defensive in choppy markets. We reiterate our BUY with an
unchanged TP of INR965/sh. Risks: Further reserve downgrades.
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