Reliance Industries: On track to recovery; Rating 'Outperform'

Jul 28 2014, 11:10 IST
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RIL reported a 6% year-on-year growth in standalone profit after tax to Rs 56.5 bn. RIL reported a 6% year-on-year growth in standalone profit after tax to Rs 56.5 bn.
SummaryRIL reported a 6% year-on-year growth in standalone profit after tax to Rs 56.5 bn.

Q1 result highlights

* RIL reported a 6% year-on-year growth in standalone profit after tax to Rs 56.5 bn (estimate of R54.4 bn). Consolidated earnings (reported for the first time quarterly) were at R59.6 bn, growth of 14% y-o-y, led by US shale and retail turnaround.

* Refining margins at $8.7/bbl marginally beat est of $8.6/bbl, driving Ebit of R37.7 bn (+28% y-o-y, 3% above the rest) But petchem disappointed with Ebit of R18.9 bn (-10% quarter-on-quarter) well below estimates.

* Ebitda (earnings before interest, taxes, depreciation, and amortisation) at R75.3 bn, came in 11% below estimates. A sharp increase in other opex (operating expenses) due to a one-time increase in fuel and power expenses drove this miss. We believe opex would moderate to normative levels over the rest of FY15e.

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* KG D6 volumes at 13 mmscmd (million metric standard cubic metre per day), -15% y-o-y. Improvement q-o-q in E&P (exploration and production) Ebit was led by a 16% y-o-y increase in PMT (Panna-Mukta & Tapti) oil volumes—uptick from infill wells on the block, expected to sustain at higher levels over next two years)

Refining –Middle distillates under pressure, Light distillates steady: Despite a slowdown in global supply additions and the recovery in the USA, refining margins remain subdued, with (i) rising exports from the USA, which has ramped up refining throughput in view of cheap feed stock (ii) muted demand growth in emerging economies as well as western Europe and (iii) gradual ramp up of additional refining capacity in the Middle East, which were commissioned in earlier years but are getting fully synchronised only now. This has led to a pressure on middle distillates, as diesel exports have ramped up from the US and Middle East into Europe, while a gradual reduction in subsidy in India and slower demand from China has depressed Diesel consumption in Asia.

Petchem–pace of capacity additions moderating but demand growth tepid: The petrochemical segment has seen divergent trends over the last few quarters, with steady polymer/ plastic spreads being offset by weakening spreads in the polyester segment. This quarter has been no different, with q-o-q increase in spreads for PE and PP (polyethylene and polypropylene), which were offset by very weak spreads across the polyester chain. Despite relatively better spreads, polymer demand domestically remains weak owing to weak demand in key consuming sectors of automobiles, construction, etc. We believe that margins from this

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