Tuesday, April 26, 2011

Reliance Industries - RU4QFY2011 - Buy

Result Update on Reliance Industries for 4QFY2011 with a Buy recommendation and a Target Price of `1189 (12 months).


For 4QFY2011, RIL reported 14.1% yoy growth in its bottom line due to higher refining and petrochemical margins. On a qoq basis, PAT growth was restricted to 4.7% because of the dip in production from KG-D6 field. Overall, numbers were below our expectations on the top-line and bottom-line fronts on account of lower-than-expected refining margins (due to the impact of FCCU shutdown) and output from KG-D6 field. We maintain Buy on the stock.


Earnings post sequential as well as yoy growth: RIL's top line increased by 26.2% yoy to `72,674cr (`57,570cr), primarily on the back of 22.3% yoy growth in refining revenue to `62,704cr (`51,250cr) and a 17.8% yoy increase in petrochemical revenue to `18,194cr (`15,448cr). Growth in the refining and petrochemical segments was due to higher product prices. Crude oil processed during the quarter was flat at 16.7mn tonnes. KG-D6 gas production declined sequentially, with average production at 51mmscmd (54.5mmscmd). Operating profit grew by 7.7% yoy to `9,843cr (`9,136cr), which was below our estimate due to lower-than-expected refining margins.


Outlook and valuation: RIL's extant businesses (refining and petrochemical) have been doing quite well and we expect the company to report higher refining margins in the coming quarters as FCCU of DTA Refinery has started. On the petrochemical side, we do not expect margins to fall below the current level. However, there are some concerns on the KG basin gas output. Nevertheless, we believe RIL's deal with BP deal is a positive one, as the combined expertise of both the parties will result in optimisation of producing blocks and enhancement of resources in exploratory blocks. Thus, timely ramp-up in producing fields would improve investor confidence and lead to factor other prospective basins as well. We maintain our Buy rating on RIL with an SOTP-based target price of `1,189.

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