>RELIANCE INDUSTRIES (MOTILAL OSWAL)

■ Overall EBITDA in-line; PAT lower than estimate: Overall EBITDA was Rs78b (v/s our estimate of Rs76b), up 46% YoY and 9% QoQ. Reported PAT grew 14% YoY and 4% QoQ to Rs40b, lower than our estimate of Rs41b due to higher depreciation and lower other income.

■ Better than expected GRM, petchem margins decline: GRM for the quarter was US$5.9/bbl down from US$10/ bbl in 3QFY09 and US$6/bbl in 2QFY10. However, it was higher than our estimate of US$5/bbl, and believe it could be led by higher margin contribution from the new refinery and use of KG-D6 gas. Petchem margins declined QoQ (as expected) to 13.9% (v/s 13.1% in 3QFY09 and 16.5% in 2QFY10) primarily due to higher input cost. However, impact on the absolute profit was lower, due to higher volumes.

■ E&P profitability impacted by higher depreciation charge; KG-D6 unlikely to reach 80mmscmd by March 2010: E&P EBIT margin was 41.8% as against 58.7% in 3QFY09 and 41.7% in 2QFY10. RIL’s KG-D6 gas volumes averaged 46mmscmd in 3QFY10 (v/s 32 in 2QFY10 and 19 in 1QFY10). Current volumes of ~60mmscmd are unlikely to increase till the capacity in GAIL’s HVJ-DVPL is increased (additional phase-1 capacity of ~10mmscmd in HVJ-DVPL expected by March/April 2010).

■ Reducing KG-D6 volume estimates; increasing GRM estimates: We are reducing our KG-D6 average volume assumptions for 4QFY10/FY11/FY12 from 65/80/100mmscmd to 62.7/70/95mmscmd. We are increasing our GRM assumption for 4QFY10/FY11 from US$6/7 per bbl to US$7/8 per bbl due to current strong GRM and expected refinery closures, worldwide.

■ Valuation and view: Adjusted for treasury shares, RIL trades at 11.5x FY12E adjusted EPS of Rs92. Our SOTPbased target price is Rs815/share. Further, we believe there is potential E&P upside of ~Rs239/share. We remain positive on RIL, primarily due to its large E&P potential. Maintain Buy.

To read the full report: RIL