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Analyst Research Report Snapshot


Reliance Industries (RIL) - Qtr. Update - Dated - October 14, 2013




Axis Capital Limited


25 Oct 2013





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RIL demonstrated strong operational performance in a challenging environment to report 2.6% QoQ growth in PAT despite lower GRMs and other income. Both refinery and petchem utilizations reached all-time highs leading to EBIT growth of 33% and 8% QoQ respectively. GRM’s are expected to improve in H2FY14 led by higher middle-distillate spreads. We expect strong standalone earnings led by higher utilization and improvement in margins. However, lower shale gas production and moderation in petchem margins has resulted in 5-6% cut in our earnings estimates for FY14 and FY15. Subsequently, we have cut our Mar ‘14 target price to Rs 1,130 (Rs 1,160 earlier), implying 30% upside from CMP of Rs 870. Maintain BUY. At CMP, the stock trades at 11x FY14E EPS of Rs 77 and 9x FY15E EPS of Rs 95. Analyst meet highlights  KG-D6 to exhibit production growth from FY15 as work-over activities would increase gas production from MA field to 9 mmscmd (vs. 6 mmscmd currently)  Refining utilization (all-time high of 114%) likely to remain high due to alterations made during shutdown in H2FY13. GRM declined to US$ 7.7/bl (vs. US$ 8.4 /bl in Q1FY14) but expected to improve in Q3FY14 due to seasonally strong middle distillate cracks  Profitability of petchem segment will be propped by strong polymer margins and high volumes (overall capacity to increase ~70% over next 3 years) Valuation and outlook: RIL’s RoCE would improve to ~19% in FY17, driven by improvement in earnings (FY13 EPS at Rs 65; FY15E at Rs 95; FY17E at Rs 146). Near term earnings (FY13-15E) would be driven by INR depreciation and improving petchem margins and capacities. In the long run (FY15-17E), earnings would be further supported by (a) new capacities (petchem, petcoke gasification) and (b) incremental gas production. Key Assumptions: Crude at USD 110/ bbl for FY14 and FY15. INR/USD at 62 for FY14 and 64 for FY15. Regards, Amit Mishra, CFA (Sr VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1142 Prashant Tarwadi (VP – Energy) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1113

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