Angel Broking maintains Neutral view on Reliance Industries

For 2QFY2013, Reliance Industries (RIL) reported a better-than-expected net profit, mainly due to higher-than-expected other income. We maintain our Neutral view on the stock.

Petchem and Refining segment drives top-line growth: RIL's 2QFY2013 net sales increased by 15.0% yoy to Rs.90,335cr, below our estimate of Rs.93,934cr. The growth in net sales was mainly driven by the Petrochemicals segment (+4.7% yoy to Rs.22,058cr) and the Refining segment (+23.1% yoy to Rs.83,878cr). However, RIL's KG-D6 gas production fell to 29mmscmd in 2QFY2013 (45mmscmd in 2QFY2012).

EBITDA declines by 21.7% yoy: The EBITDA decreased by 21.7% yoy to Rs.7,705cr on account of lower profits from the Petrochemicals segment where the EBIT decreased 28.2% yoy to Rs.1,740cr, and the Oil and Gas segment where the EBIT decreased 43.4% yoy to Rs.866cr during the quarter. RIL's GRM stood at US$9.5/bbl in 2QFY2013 compared to US$10.1/bbl in 2QFY2012.

Higher other income and lower depreciation mutes decline in PAT: During the quarter, the company's other income rose by 91.7% yoy to Rs.2,112cr due to higher treasury income. The depreciation (including depletion) expense decreased by 23.3% yoy to Rs.2,277cr due to lower oil and gas production. Hence, despite a 21.7% decline in the EBITDA, the company's PAT decreased by only 5.7% yoy to Rs.5,376cr (above our estimate of Rs.5,013cr).

Outlook and valuation: RIL's profits continued to decline from Petrochemicals and Oil and Gas segments during 2QFY2013. Further, there are concerns of declining gas production from the KG D6 block. RIL has stated that additional investments are required to increase production from KG D6. However, production is unlikely to increase during FY2013-14 in our view. Hence, we maintain our Neutral view on the stock.

Source : Equity Bulls

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