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Analyst Research Report Snapshot


Reliance Industries (RIL) - Qtr. Update - Dtd. - January 18, 2013




Axis Capital Limited


19 Jan 2013





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RIL’s Q3FY13 PAT of Rs 55 bn (flat QoQ) was led by its highest-ever refining EBIT of Rs 36 bn. The company reported strong gross refining margin (GRM) of US$ 9.6/bl (vs. our expectation of US$ 8.5/bl) led by higher light-heavy differential and better middle distillate spreads. We expect global refining market to remain balanced over next 3 years, which would keep GRM stable. We expect RIL to report 23% earnings CAGR over FY14-17. Importantly, ~70% of this growth will come from new projects in refining and petchem which are NOT dependent on regulatory approvals. Moreover, improving regulatory environment would remove overhang on its E&P business. Gas price hike, recovery in cyclical margins and value unlocking from telecom/ retail venture are additional upsides. Analyst meet highlights  E&P - domestic: Management clarified Rangarajan committee report is just an indicator that government is inclined to move to market-linked prices. While this is comforting, RIL believes Committee’s recommendations are not a true representative of market-linked prices. Hence the company will continue to push for higher gas prices  Refining: Company to undertake maintenance shut down in one CDU in SEZ refinery for 3 weeks in Q4FY13  Petrochemicals: Polyester capacity to come on line from Q1FY14. Margins expected to remain stable supported by demand improvement from China Valuation: Our March ’14 SOTP-based target price of Rs 950 implies 6% upside from CMP of Rs 899. We revise our rating to HOLD due to stock price appreciation. However, our Mar ’16 SoTP value of Rs 1,350/ sh implies 3-year stock CAGR of 14%. At CMP, the stock trades at 13x FY14E EPS of Rs 66 and 12x FY15E EPS of Rs 74. Key Assumptions: Crude at USD 100/ bbl for FY14 and USD 90/ bbl for FY15. INR/USD at 53 for FY14 and 51.4 for FY15. Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (AVP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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