Tuesday, April 24, 2012

>RELIANCE INDUSTRIES LIMITED: RIL to set up a petcoke gasification plant (4QFY2012 Results)

For 4QFY2012, Reliance Industries (RIL) reported 17.2% yoy growth in its top line. However, EBITDA and PAT declined by 33.3% yoy and 21.2% yoy, respectively, due to a decline in KG-D6 gas production and lower gross refining margins (GRMs).

Lower gas production leads to a decline in bottom line: RIL’s net sales increased by 17.2% yoy to `85,182cr, in-line with our estimate of `84,669cr. However, EBITDA decreased by 33.3% yoy to `6,563cr on account of lower profits from all its three main segments. GRM stood at US$7.6/bbl in 4QFY2012 compared to US$9.2/bbl in 4QFY2011 and US$6.8/bbl in 3QFY2012. Production from KG-D6 stood at 35mmscmd in 4QFY2012 compared to 41mmscmd in 3QFY2012 and 51mmscmd in 4QFY2011. Other income increased by 150.3%
yoy to `2,295cr and depreciation expenses decreased by 21.5% yoy to `2,659cr. Hence, despite the 33.3% decline in EBITDA, PAT decreased by only 21.2% yoy to `4,236cr (slightly above our estimate of `4,177cr).

RIL to set up a petcoke gasification plant: During 4QFY2012, RIL finalized its plan to set up a petcoke gasification plant for a capex of US$4bn. The company also downgraded its KG-D6 reserves by 12-15% due to reservoir complexity.

Outlook and valuation: RIL’s refining and petrochemical segments’ profits declined during 4QFY2012. Going forward, although there are some concerns on the KG basin gas output, we believe RIL along with BP will optimize its producing blocks in KG-D6. Moreover, the stock is currently trading at a PE of 11.1x FY2013E and 10.4x FY2014E, compared to its past five-year trading average of 17.0x forward PE. Thus, we maintain our Buy recommendation on RIL with an SOTP target price of `872.

To read report in detail: RIL