Accumulate Reliance Industries Limited - Positive on refining and upstream - KR Choksey

Reliance Industries Ltd (RIL) reported net Profit of Rs 4236 cr, in line with our expectation (Rs 4210 cr). Net profit declined by 21% y-o-y, mainly due to the company not able to arrest falling gas production from KG-D6, reduction in deltas across olefins and polyester chain. Net sales improved by 17% to Rs 85,182 cr on Y-o-Y largely due to higher prices of products while increase in volume accounted only 2%. Other income was higher at Rs 2295 cr as against Rs 917 cr on a y-o-y basis primarily due to higher average liquid investments. Outstanding debt at the end of Q4FY12 was Rs 65,352 cr compared to Rs 66,236 cr as on 31st March 2011.

Oil & Gas Segment outlook: 36% Dip in revenue on Y-o-Y basis and ~8% on Q-o-Q basis to Rs 2609 cr mainly due to fall in production to the level of 36 mmscmd (AvgQ4FY12) and transfer of 30% Participating Interest (PI) in KG-D6 to BP. RIL has identified satellite and cluster fields, which can be developed and connected to production facilities, to increase gas volumes. RIL, along with BP has suggested to the government integrated field development plan to reduce costs and increase gas production. The company hopes to submit integrated FDP by Dec-12, and hopes to bring the whole field into production in next three years. RIL provided positive commentary on E&P portfolio and BP's technical expertise is expected to help arrest decline in gas production and eventually increase from current levels.

Refining & Marketing: Revenue increased by 22% on YoY basis to Rs 76,211 cr in Q4FY12. Increase in revenue principally due to higher price environment of products. Lower refinery throughput due to 3-week shut down of one of the two CDUs at its SEZ refinery. GRM were $7.6/bbl in line with Singapore complex GRM.

DD&A charges & Tax rate. Q4FY12 DD&A increased 3.5% qoq to Rs 2659cr. RIL's Q4FY12 effective tax rate was 22% compared to 22.6% in Q3FY12 and 19.5% in 4QFY11. We note that RIL continues to provide for tax at the MAT rate of 20% for gas produced from its KG D-6 block.

Valuation: We believe that refining margin improving but still relatively low we expect pickup in regional margins in 2H CY12. Any gradual recovery in downstream demand and improvement in global operating rates would be positive trigger for petchem and We are more positive on upstream (revision of gas price and pick up in shale gas) key trigger would be greater visibility on non-D6 production. we recommend Accumulate on RIL with price objective of Rs 800/share.

Source : Equity Bulls

Keywords