Reliance Industries - 1QFY14 – All stable, no surprises - Standard Chartered Securities

IN-LINE, RIL IN, CMP INR 923, Price Target INR 908

- Earnings at INR 53.5bn were in line, led by par performance in refining /petchem and yet another increase in other income, partially aided by capital gains booked.

- Refining EBIT, albeit lower q/q, was supported by firm GRM of USD 8.4/bbl (full year est. USD 8.5/bbl); petchem EBIT was flat.

- E&P: Work-over at D1/D3 will improve volumes by FY16. Development of satellite/R-series to add volumes in FY18.

- Maintain In-Line rating with a revised PT of INR 908 mainly to incorporate FY13AR. The impact of three big projects is back-ended (FY17) and hence not part of IER's valuation.

- Success in CY-D5 drilling could provide upside, whereas downturn in global demand and sub-par returns in telecom/ retail (capital employed of USD 5.0bn) pose downside risk.

1QFY14 earnings in line: 1QFY14 earnings at INR 53.5bn (+20% y/y, -4% q/q) were in line as lower operating profit of INR 70.7bn (+5% y/y, -10% q/q) was compensated by higher other income (aided by INR 9bn of gains on sale/redemptions).

Refining down on GRM, petchem flat due to higher costs: Refining EBIT at INR 29.5bn (+37% y/y, -16% q/q) was supported by firm refining margin of USD 8.4/bbl (USD 10.1/bbl in 4QFY13) and higher throughput to 17.1MTPA. Petrochemicals EBIT at INR 18.9bn (+8% y/y, flat q/q) was mixed with better profits in the PE chain compensated by weak profits for PP and PVC. Polyester spreads also remained mixed with weak PX spreads, but better final product spreads. The three mega projects with USD 12bn investments are on track, with polyester expansion coming on stream in stages by 2QFY14. The full impact of the pet-coke gasification/ROGC project is likely in FY17. E&P – bottoming out but no quick wins: The completion of work-over plans, booster compressor installation along with MA recovery process, which have been approved, at the D1-D3 fields is expected to support volumes from FY16. Production from the satellite fields and R series (capex plan likely to be approved shortly) will support gas volumes post FY18. IER modifies KG-D6 DCF slightly by cutting FY17 volumes (20 mmscmd versus 30 earlier) and maintain FY14/15 at 12 mmscmd. Appraisal of recent MJ-1 discovery to commence in 2HFY14 with likely production in FY18 at best, given higher complexity of the find. US shale continued the momentum with EBITDA of USD 165mn (up 6% q/q).

Maintain In-Line: IER maintains its earnings estimates for FY14-15E and its rating with a revised PT of INR 908 (INR 900 earlier) to build in higher retail and telecom investments.

Source : Equity Bulls

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