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Reliance Industries Ltd. (RIL) | Q2FY14 Result Update




IndiaNivesh Securities Pvt Ltd


15 Oct 2013





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Reliance Industries Ltd. (RIL) | Q2FY14 Result Update | Improved operating performance, PAT in line with street expectation RIL reported Q2FY14 net profit (Standalone) in line with street expectation. The quarter witnessed improved operating performance on the back of increase in refining and petchem volume, robust petchem margin and weaker Rupee offset by lower GRM in refining business and decline in KG-D6 volume. Reported PAT stood at Rs. 54.90 bn vs. consensus of Rs 55.40 bn. Revenue increased by 14.9% y-o-y and 18.4% q-o-q to Rs. 1037.58 bn above consensus of Rs. 976.72 bn due to increase refining and petchem volume coupled with weaker Rupee. GRM for the quarter stood at $7.7/bbl vs. $8.4/bbl in Q1FY14 and $9.5/bbl in Q2FY13. RIL’s premium over Singapore GRM remain higher to $2.2/bbl. Petrochemicals business performance was boosted by higher volumes, stable demand, improved deltas for key polymers (PP/PE) and fibre intermediates (PX/MEG), and favourable exchange rate movement. Petchem EBIT margin stood at 10.06% (v/s 8.60% in Q1FY14 and 7.9% in Q2FY13) driven by INR weakness and healthily margin in polymer business. Increase in import duty in polymers in domestic market also supported this trend. In E&P business, gas production from KG-D6 declined further to 14 mmscmd (down 1mmscmd QoQ and 14.3 mmscmd YoY)). Retail and US Shale gas business continues to make remarkable progress and registered 31% and 41% YoY growth in revenues. Other income decreased by 2.5% YoY and 18.7% QoQ to Rs 20.60bn (29.9% of PBT) due to decline in cash and bank balance. We believe that improvement in core business and decline component of other income is positive for the company, once the GRM margins pick up stock should see good momentum upwards. We maintain buy rating on the stock with target price of Rs. 1,053. Valuation: We believe the company would be beneficiary of recent sharp depreciation in INR against USD. Petrochemicals cracks also remain robust in near term driven by INR weakness and expansion in polymer cracks. Further, proposed hike in natural gas price is a big trigger in medium term for the stock. At CMP Rs.870 stock is trading at 11 x FY15E EPS which is lower than its mean of 15x. We maintain buy rating on the stock with target price of Rs. 1,053.

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