Stock Market Update on Reliance Industries for 1QFY2012

Stock Market Update on Reliance Industries for 1QFY2012 with a Buy recommendation and a Target Price of `1180 (12 months)

For 1QFY2012, RIL reported 16.7% yoy growth in its bottom line due to strong growth in earnings from refining and petrochemical margins. On a qoq basis, PAT growth was restricted to 5.3% because of the dip in production from the KG-D6 field. We maintain our Buy recommendation on the stock.

Strong 1QFY2012 performance: RIL's top line was above our estimates on account of higher-than-expected revenue from the petrochemicals and refining segments. The top line increased by 39.1% yoy to `81,018cr, primarily on the back of a 45.8% yoy increase in refining segment’s gross revenue to `73,689cr and a 32.1% yoy increase in the petrochemical segment’s gross revenue to `18,366cr. During the quarter, RIL reported a marginal sequential rise in GRMs to US$10.3/bbl (US$7.3/bbl), lower than our expectation of US$11.0/bbl. Singapore complex refining margin averaged US$8.5/bbl during 1QFY2012 from US$7.4/bbl in 4QFY2011. PAT grew by 16.7% yoy to `5,661cr, which was in-line with our expectation.

Outlook and valuation: RIL’s extant businesses (refining and petrochemical) continued to perform well. We expect the company to report robust 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, the timely ramp-up in producing fields would improve investor confidence. We maintain Buy on RIL with an SOTP-based target price of `1,180.

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