Singapore Complex GRM (gross refining margin) has remained weak through October and November, averaging $3.8/bbl (barrel) in Q3FY14 till date against $6.5/bbl last year. Fuel oil and gasoline cracks have been particularly weak while naphtha and diesel cracks have been better, which should help Reliance Industries'
premium over Singapore GRM—we estimate its Q3 GRM till date at $6.5/bbl. FY14 GRM till date is likely to be $7.7/bbl.
Regional GRM remains very weak in Q3 till date: Singapore complex GRM, which had declined in July/August, has continued to remain weak through October and November due to weak demand for most key products. In Q3FY14 till date Singapore GRM is averaging $3.8/bbl against $5.4 in Q2 and $6.5 in Q3FY13. Fuel oil and gasoline cracks have been weak; diesel cracks have showed slight improvement in October/November; naphtha cracks have improved and were up in November.
GRM estimates: We expect relatively better naphtha and diesel cracks (50%+ of Reliance’s product slate vs. 23% of Singapore GRM) compared to fuel oil and gasoline cracks (18% of Reliance’s product slate vs. 50%+ of Singapore GRM) to benefit Reliance’s premium over Singapore GRM. Wwe estimate Reliance’s GRM in Q3 till date to be in the range of $6-7/bbl. YTD in FY14 Reliance’s GRM is averaging $7.7/bbl against our full year estimate of $9/bbl.
Domestic demand: Domestic demand for most petroleum products has been weak in FY14—diesel consumption is down 1% y-o-y against 7% growth in FY13.
Valuation/risks: Our fair value of R890 implies P/E of 11.5x on FY15 EPS and 1.4x P/B (price-to-book multiple) on FY13 BVPS (book value per share), in line with its growth and return profile.
Key risks: (i) downstream margins; (ii) new discoveries; (iii)currency; (iv) regulations.