Reliance Industries - Earnings resilient; GRMs likely to have bottomed out - Religare

RIL posted a healthy, in-line Q2FY14 PAT (Rs 54.9bn) despite weaker GRMs (US$ 7.7/bbl). Earnings were supported by a stronger Petchem EBIT of Rs 25bn (+33% QoQ) and higher refining throughput at 17.7mmt. While KG-D6 production declined to 14 mmscmd, the rate of decline was slower, and production should pick up over Q3-Q4FY14 as incremental wells in MA get integrated. Shale gas production during Q2 declined to 36.5Bcf (Q1:38 Bcf) on delays in well-hookups. Maintain HOLD with a TP of Rs 910.

- In-line, resilient earnings: Despite a sequential decline in GRMs to US$ 7.7/bbl (US$ 8.4/bbl in Q1), RIL reported an in-line PAT of Rs 54.9bn (+2.6% QoQ/2.1%YoY) and an EBITDA of Rs 78.5bn (+11% QoQ/+2% YoY), aided by (a) a stronger Petchem EBIT of Rs 25bn, (b) higher refining throughput of 17.7mmt and (c) a weaker INR.

- KG-D6 production dips to 14.1mmscmd; likely to pick up: Though KG-D6 production continues to decline, the rate of decline has slowed down. RIL looks forward to stabilise the field over Q3-Q4FY14, with production likely to pick up with the integration of MA-8 and MA-6 wells in the MA field.

- Petchem earnings robust: Backed by stable demand from China (+10% YoY) and India (+8% YoY), higher utilisation rates in Asia (90%) and a weaker INR (-11% QoQ), RIL posted a strong Petchem EBIT of Rs 25bn (+44% YoY; +33% QoQ), which shored up its Q2 earnings. However, the petchem outlook for H2FY14 is flat at best.

- Refining margins at US$ 7.7/bbl likely to have bottomed out: RIL made up for lower GRMs through its highest-ever throughput at 17.7mmt. The company's GRMs declined QoQ on improved refining runs globally at 77.2mbpd (+1.4mbpd YoY) during Q2, coupled with higher exports from the US, Russia and China. GRMs have likely bottomed and would improve on expected reduction in refining runs and winter heating demand.

Source : Equity Bulls

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