RIL - GRM beats expectation; upgrade to Add - BRICS

RIL's net profit grew 32% yoy to Rs55.8bn in Q4FY13, on the back of a strong performance by the Refining segment (GRM up 32% yoy to US$10.1/bbl vs. our estimate of US$9.5/bbl). RIL's results would have been even better, but for a decline of 1.2% yoy in refinery throughput to 16.1mmt. The Petrochemical segment performed below expectations (EBIT down 13% yoy to Rs18.9bn), on account of lower spreads. We are lowering our KG D6 production volume assumptions for FY14 and FY15. Our SOTP based target price is down by 0.5% to Rs877, due to the change in assumptions and roll over to Q4FY14 estimates. RIL trades at 12.1xFY14E and 11.9xFY15E and at an 8% discount to our SOTP based target price of Rs877. Upgrade to Add from Reduce.

Net profit up 32% yoy; GRM expands by 32% yoy to US$10.1/bbl

RIL's net profit grew 32% yoy to Rs55.8bn (vs. our estimate of Rs52.3bn), led by higher than expected GRM and other income. The refining segment's EBIT at Rs35.2bn (up 107% yoy) was 13% higher than our estimate, largely due to a higher GRM of US$10.1/bbl (vs. our expectation US$9.5/bbl). The sequential strengthening of light distillate cracks and continued strength in middle distillate cracks were the key drivers of the strong GRM for the quarter. The Petrochemical segment's EBIT fell 13% yoy to Rs18.9bn (vs. our estimate of Rs19.3bn), on account of lower deltas for polymers, especially polyester, and a decline of 1.8% yoy in petrochemical volumes. The EBIT of RIL's upstream business fell 52% yoy to Rs4.6bn, mainly due to a decline of 36% yoy in oil and condensate production to 7.7kbopd and a fall of 46% yoy in KG basin gas production volume to 19.3mmscmd (vs. our expectation of 19mmscmd). Other income increased by 29% qoq to Rs22.4bn, on account of higher treasury income. DD&A costs declined 9% yoy to Rs22.3bn, as a result of lower oil and gas production.

Lowering FY14 and FY15 EPS estimates due to lower KG D6 production

Gas and oil+ condensate production from the KG D6 field declined 29% yoy and 36% yoy to 19mmscmd and 7.7kbopd respectively, due to geological complexity, natural decline and water & sand ingress. Hence, we are lowering our KG D6 gas production assumptions for FY14 and FY15 by 43% and 18% to 13mmscmd and 23mmscmd respectively, as well as our oil production assumptions for FY14 and FY15 by 5% each to 7.1kbopd and 6.7kbopd respectively. We are revising our Rupee-Dollar exchange rate assumption to Rs54/US$ from Rs52/US$. As a result of change in assumptions, our EPS estimates for FY14 and FY15 are down by 1% and 0.5% to Rs72.6 and Rs74.3 respectively.

Upgrade to Add

Our 12-month SOTP-based target price is down by 0.5% to Rs877, due to the change in our assumptions and rollover to Q4FY14 estimates. RIL trades at 12.1x FY14 and 11.9x FY15 earnings and at an 8% discount to our SOTP-based target price of Rs877. Going forward, we expect the refining and new businesses to drive RIL's growth. The stock's valuations appear attractive and indicate potential for an upside. We, therefore, upgrade RIL to Add from Reduce.

Source : Equity Bulls

Keywords