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Reliance Industries Ltd Overweight
RELI.BO, RIL IN
Roadmap to growth - Part I: Energy Businesses
We believe market concerns on RIL’s growth visibility are misplaced. In
its core energy business, RIL will be investing US$17bn over FY11-15E
(39% increase in gross block). Bulk of these investments will be in
downstream petrochemicals (US$12bn) – based on FY11 spreads, we
estimate just these investments will double petrochem earnings over
FY12-15E, potentially driving a 7% EBITDA CAGR. Separately, shale
investments should add US$2bn to RIL revenues by FY15E.
RIL is adding significant petrochem capacities: RIL is doubling its
polyester intermediate volumes over FY11-15E. Also, total polyester
capacity is slated to increase 50% from 2.4mMTPA to 3.6mMTPA.
1.5mMTPA off-gas cracker at Jamnagar will add to ethylene derivatives
capacity. Importantly, it will confer significant feedstock cost advantage
– auguring well for profitability. Based on FY11 spreads, we estimate
the cap adds will double petchem netbacks over FY12-FY15E
Counter-cyclical investments have paid off in the past. With these
projects getting executed in an uncertain cyclical environment, RIL will
be looking to leverage project scale and strong execution track record to
contain capital costs which will aid project economics.
Upstream investments in Shale should add US$2bn to revenues.
Shale gas is no longer un-proven technology – it contributes >13% to
US natural gas production and is the key reason for low gas prices there.
RIL’s shale investments will contribute US$2bn to revenues by FY15E.
Refining, E&P should also contribute to growth: D6 output is
currently below potential, BP’s technical involvement could enable
ramp-up. Apart from margin uplift, RIL could also grow refining EBIT
through de-bottlenecking refineries/pushing throughput in a conducive
environment.
Reiterate OW: Near-term we expect margin uplift in refining to be a
driver for RIL profit growth – however there is visibility on significant
volume led growth in petrochems, shale. We reiterate OW rating on RIL
with a SOTP based PT of Rs1200. Downside risks emanate from a
prolonged downcycle in refining, petchem, harsh regulatory action.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Reliance Industries Ltd Overweight
RELI.BO, RIL IN
Roadmap to growth - Part I: Energy Businesses
We believe market concerns on RIL’s growth visibility are misplaced. In
its core energy business, RIL will be investing US$17bn over FY11-15E
(39% increase in gross block). Bulk of these investments will be in
downstream petrochemicals (US$12bn) – based on FY11 spreads, we
estimate just these investments will double petrochem earnings over
FY12-15E, potentially driving a 7% EBITDA CAGR. Separately, shale
investments should add US$2bn to RIL revenues by FY15E.
RIL is adding significant petrochem capacities: RIL is doubling its
polyester intermediate volumes over FY11-15E. Also, total polyester
capacity is slated to increase 50% from 2.4mMTPA to 3.6mMTPA.
1.5mMTPA off-gas cracker at Jamnagar will add to ethylene derivatives
capacity. Importantly, it will confer significant feedstock cost advantage
– auguring well for profitability. Based on FY11 spreads, we estimate
the cap adds will double petchem netbacks over FY12-FY15E
Counter-cyclical investments have paid off in the past. With these
projects getting executed in an uncertain cyclical environment, RIL will
be looking to leverage project scale and strong execution track record to
contain capital costs which will aid project economics.
Upstream investments in Shale should add US$2bn to revenues.
Shale gas is no longer un-proven technology – it contributes >13% to
US natural gas production and is the key reason for low gas prices there.
RIL’s shale investments will contribute US$2bn to revenues by FY15E.
Refining, E&P should also contribute to growth: D6 output is
currently below potential, BP’s technical involvement could enable
ramp-up. Apart from margin uplift, RIL could also grow refining EBIT
through de-bottlenecking refineries/pushing throughput in a conducive
environment.
Reiterate OW: Near-term we expect margin uplift in refining to be a
driver for RIL profit growth – however there is visibility on significant
volume led growth in petrochems, shale. We reiterate OW rating on RIL
with a SOTP based PT of Rs1200. Downside risks emanate from a
prolonged downcycle in refining, petchem, harsh regulatory action.
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