| Reco : Buy Cmp : 767 Target : 945 |
| RIL’s QTD (Jan-Mar) refining margin remains weak due to decline in product spreads, worsening light-heavy differential and refinery shutdown. We expect Q4FY12 petchem EBIT to decline 5% QoQ on weak polymer spreads. However, higher other income would offset decline in EBIT. We expect 2% QoQ improvement in Q4FY12 PAT based on QTD trends. Our EPS estimates and target price remain unchanged as we had built in lower GRM in Q4FY12 due to refinery shutdown and lower light-heavy differentials. |
| Refining – GRM weakness continues : Despite a 21% QoQ improvement in Singapore GRM’s to US$ 8.3/bl, RIL’s GRM is expected to remain weak at US$ 7/bl due to lower light-heavy differentials, middle-distillate margins and limited production of higher-margin light-end products. Notably, Dubai crude (used for calculation of Singapore GRM) is selling at a discount to Arab heavy crude used by RIL. |
| Polymer weakness to impact margins : Petchem blended margin is expected to be down ~5% QoQ as strong gas cracking margin would be offset by weak polymer and PTA margins |
| E&P – production overhang continues : KG-D6 output would drop to 36 mmscmd in Q4FY12 (42 mmscmd in Q3), resulting in 12% QoQ decline in E&P EBIT. |
| Valuation reasonable : Polyester capacity ramp up over next 18-24 months would result in earnings CAGR of 12% over FY13-15. Maintain BUY with March ’13 target price of Rs 945, which implies 23% upside from CMP of 767. Additional upside likely from DGH approval for E&P ramp-up and increase in domestic gas prices. |
Reliance Industries
