Reliance Industries (RIL IN; Mkt Cap USD74.1b, CMP Rs1,054, Neutral)
- 1QFY11 EBITDA and PAT in line with estimates: RIL reported EBITDA of Rs93.4b for 1QFY11, in line with our estimate of Rs94b (+46% YoY; 2% QoQ). PAT was Rs48.5b (v/s our est. of Rs47.7b), up 32% YoY and 3% QoQ.
- Premium of US$3.7/bbl over Singapore GRM: RIL's GRM for 1QFY11 was US$7.3/bbl, largely in line with our est. of US$7/bbl (v/s US$7.5/bbl in 4QFY10 and US$6.8/bbl in 1QFY10). Premium over benchmark Singapore GRM expanded from US$2.6/bbl in 4QFY10 to US$3.6/bbl, led by higher light-heavy crude differentials and improved diesel cracks.
- Higher polyester margins enable sustenance of overall petchem margins: Petchem EBIT margin for the quarter was 14.8% as against 18% in 1QFY10 and 14.4% in 4QFY10. On a QoQ basis, though polymer margins were lower, overall petchem margins improved, led by higher polyester margins (highest in last six quarters) and 3% rise in polyester volumes.
- KG-D6 volumes unlikely to increase in the next 6-12 months: As against the earlier expectation of KG-D6 gas production reaching 80mmscmd by 1HCY10, RIL indicated that the production is unlikely to increase for the next 6-12 months. E&P EBIT margin remained low at 41.2% against 54% in 1QFY10 due to higher DD&A costs of KG-D6.
- Cutting estimates; downgrading to Neutral: We are cutting our KG-D6 gas sales volume estimates for FY11/12 from 70/95mmscmd to 60/75mmscmd. Led by lower gas volumes, our FY11/12 EPS est. are downgraded by 3/9% to Rs67/75. Adjusted for treasury shares, RIL trades at 14x FY12E adjusted EPS of Rs75. We cut our SOTP-based target price from Rs1,133 to Rs991 (including upside potential of Rs67/share). We downgrade the stock to Neutral.