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.