>Reliance Industries (ANAND RATHI)

Niko data points sustain E&P promise; Reiterate Buy

■ D6 capex to rise to US$10bn. Niko now expects capex on the current D6 project to be a higher-than-budgeted US$10bn over the life of the project. It expects gas production to start by 1 Apr ’09. We do not expect the higher capex to materially affect the valuation due to the cost recovery mechanism.

■ Production to ramp up to 120m cmd. Niko re-affirmed plans to raise D6’s peak production to 120m cmd by developing nine satellite discoveries at an additional capex of US$6bn. The development plan for these discoveries awaits approval.

■ D4 a wild card; exploration drilling in D6 re-started. Niko stated that the D4 field (RIL owns 85%), could be much larger than D6, based on initial studies. Niko also confirmed that after a 16-month lull, exploration drilling has re-commenced at D4.

■ Earnings. We restate estimates, incorporating the proposed merger, recent rupee depreciation, and higher margins.

■ Valuation. We raise the fair value of RIL to Rs1,625 (Rs1,300 earlier), incorporating RPL’s valuation minus the holding company discount, higher margins, and adjusting for the recent rupee depreciation. We value refining and petrochemicals businesses at EV/EBITDA of 5.5x FY10 estimates, new refinery at DCF and its E&P businesses using DCF/multiple-based approach.


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