Monday, April 26, 2010


Marginally below estimates led by lower GRM, higher depreciation: RIL's 4QFY10 reported EBITDA was Rs91.4b, marginally lower than our estimate of Rs94.6b (up 68% YoY and up 16% QoQ), led by lower GRM and lower E&P profitability. PAT was Rs47.1b (v/s our estimate of Rs48.6b), up 22% YoY and 18% QoQ.

Lower than expected GRM; petchem strong: Reported GRM was lower than our estimate at US$7.5/bbl (v/s our estimate of US$8/bbl), against US$9.9/bbl a year earlier and US$5.9/bbl in 3QFY10. Petchem EBIT margin was 14.4% against 17.7% in 4QFY09 and 13.9% in 3QFY10. Petchem made the highest ever quarterly EBIT of Rs22.2b, led by strong volume and margin growth.

E&P profitability hit by higher depletion; ramp-up contingent to GAIL de-bottlenecking: E&P EBIT margin continued to decline led by higher depletion and was 39.4% against 64.3% in 4QFY09 and 41.8% in 3QFY10. KGD6 gas volumes averaged 60mmscmd in 4QFY10 (v/s 48 in 3QFY10, 32 in 2QFY10 and 19 in 1QFY10) and a further increase is contingent on GAIL's HVJ-DVPL debottlenecking. MA oil production ramped up significantly and is producing 30kbpd (no clarity on a further ramp-up).

Clarity on timelines for other E&P blocks yet to emerge: The management did not provide specific guidance in terms of the exploration/appraisal/development plan for its other key blocks. We believe clarity on the development plans for NEC-25, satellite fields would be key to clarity on medium-term E&P earnings growth.

Valuation and view: We model GRM of US$7.6/8.5/bbl in FY11/FY12. The key things to watch in the near term would be (1) resolution of its court cases with RNRL and NTPC; (2) ramp-up of KG-D6 gas, and (3) deployment of its increasing cash on the balance sheet. Adjusted for treasury shares, RIL trades at 12.4x FY12E adjusted EPS of Rs87.9. Our SOTP-based target price for RIL is Rs1,133/share (including upside potential of Rs205/share). Buy.

To read the full report: RIL