RIL 2QFY12 earnings of Rs57bn (+16% y/y) were in line with our and
consensus expectations. Lower-than-expected refining margins was offset
by robust petchem earnings, but more importantly management
commentary on ramping up of D6 block production was positive, though
no firm timelines for ramp-up were specified
Glimmer at the end of the E&P tunnel? RIL management provided
positive commentary on D6 block E&P ramp-up, stating D1-D3 shortfall
could be made up through satellite fields and R-series fields’ production.
Key challenge was on regulatory approvals, with tie-up of these fields to
existing infrastructure technically feasible in 2 years after approvals.
2QFY12 – Petchem provides cushion: Petchem EBIT of Rs24.2bn was
ahead-of-expectations on the back of a rebound in domestic demand in
2Q that management attributed to re-stocking to normalized inventory
levels by downstream players and steady end-use demand. Polyester
chain margins were robust with tight PX and MEG markets in 2Q. RIL
expects polyester chain margins to sustain at higher levels with strong
PX spreads and ability of polyester to pass through higher intermediate
costs due to continuing differential vis-à-vis cotton.
Refining was a tad disappointing: Refining margins of US$10.1/bbl
was below our expectation of US$10.5/bbl. Management attributed
lower delta v/s Singapore benchmark to 1) tighter light-heavy
differentials, 2) correction in gasoil crack, 3) higher LNG fuel costs and
4) weaker LPG margins. While RIL expects refining margin
environment to be strong as they expect low delivery on expected cap
adds and continued demand from EM; we are cutting our complex GRM
expectations on poor outlook for Light-Heavy crude differentials as
Libya ramps-up crude production faster than earlier expected.
Retain OW, Sep-12 PT of Rs1140: We roll-over our PT basis to Sep-12
and incorporate conservative GRM, gas ramp-up assumptions. Key risk:
prolonged economic downturn, further regulatory delays
consensus expectations. Lower-than-expected refining margins was offset
by robust petchem earnings, but more importantly management
commentary on ramping up of D6 block production was positive, though
no firm timelines for ramp-up were specified
Glimmer at the end of the E&P tunnel? RIL management provided
positive commentary on D6 block E&P ramp-up, stating D1-D3 shortfall
could be made up through satellite fields and R-series fields’ production.
Key challenge was on regulatory approvals, with tie-up of these fields to
existing infrastructure technically feasible in 2 years after approvals.
2QFY12 – Petchem provides cushion: Petchem EBIT of Rs24.2bn was
ahead-of-expectations on the back of a rebound in domestic demand in
2Q that management attributed to re-stocking to normalized inventory
levels by downstream players and steady end-use demand. Polyester
chain margins were robust with tight PX and MEG markets in 2Q. RIL
expects polyester chain margins to sustain at higher levels with strong
PX spreads and ability of polyester to pass through higher intermediate
costs due to continuing differential vis-à-vis cotton.
Refining was a tad disappointing: Refining margins of US$10.1/bbl
was below our expectation of US$10.5/bbl. Management attributed
lower delta v/s Singapore benchmark to 1) tighter light-heavy
differentials, 2) correction in gasoil crack, 3) higher LNG fuel costs and
4) weaker LPG margins. While RIL expects refining margin
environment to be strong as they expect low delivery on expected cap
adds and continued demand from EM; we are cutting our complex GRM
expectations on poor outlook for Light-Heavy crude differentials as
Libya ramps-up crude production faster than earlier expected.
Retain OW, Sep-12 PT of Rs1140: We roll-over our PT basis to Sep-12
and incorporate conservative GRM, gas ramp-up assumptions. Key risk:
prolonged economic downturn, further regulatory delays
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