Reliance Industries Limited - Cyclical and other income dominate earnings, maintain HOLD - Antique

4QFY13 operating results in line, GRMs beat expectations

Reliance Industries Ltd (RIL) reported a net profit of INR55.9bn in 4QFY13, up 2% QoQ and 2% above our expectation because of lower interest (9% below estimate) and depreciation (5% below estimate). The company's EBITDA was in line with our estimate of INR78.3bn. 4Q GRM improved sequentially to USD10.1/bbl from USD9.6/bbl in 3Q. However refining EBIT declined 3% QoQ due to a 4 weeks shutdown in the SEZ refinery leading to 8% QoQ decline in total throughput to 16.1mmt. Petchem performance was largely flat as margin improvement was offset with lower volumes. Gross KG-D6 gas production fell sharply by 20% QoQ to 19.2mmcmd, with EBIT decline of 22%.

RIL-BP has submitted integrated enhancement plan for KG-D6 to salvage output

RIL-BP has announced USD5bn+ investments in KG-D6 block over the next 3-5 years to augment development of 4tcf of discovered gas resources. As part of this integrated enhancement plan, FDP for R-Series has been recently submitted; G2 well in Satellite 1 field was successfully drilled and critical work for booster compressor and MEG up-gradation has started at D1-D3 besides drilling of MJ1 exploration well. RFDP for MA field has also been approved which involves drilling of a new gas well (MA-8) and work over of 2 wells to enhance the output.

Material recovery in KG-D6 output is still 3-4 years away

We expect material recovery in KG-D6 output only by FY16-17e as development of satellite discoveries and freshly explored prospects would take 3-4 years. The KG-D6 field optimization plan though compression and water handling and MA redevelopment plan is likely to arrest output decline in FY15e followed by some marginal recovery as well. However we expect 20-30mmcmd of incremental output from the block only post development of Satellite 1, R-Series and other satellite fields which are in line with RIL's guidance of incremental production by FY17e. Further approvals pertaining to D-29, 30, 31 satellite discoveries and pricing are crucial to attain envisaged production target.

Refining performance to remain volatile

4QFY13 witnessed benchmark GRMs jump on the back of seasonal maintenance, shutdowns and other factors which reversed as the quarter ended resulting in margins crashing by ~40% in last month. We believe shutdowns and outages would continue affecting GRMs going forward as oil products demand scenario remain weak. Medium term margins would be governed by pace of capacity additions/ mothballing and price/demand environment. We estimate RIL's GRM at USD9.2/9.2 per barrel for FY14/15e, in line with FY13 reported GRMs.

Maintain HOLD rating on RIL with a target price of INR875

We roll our target price to FY15 earnings and value RIL on a SOTP basis and keep our estimates unchanged. We maintain our HOLD rating on the stock with a target price of INR875/sh.

Source : Equity Bulls

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