LKP has recommended a neutral rating on Reliance Industries with a target price of Rs 950, in its research report dated October 14, 2014.
"RIL's Q2FY15 operating profit (standalone) was of Rs82.4bn was ahead of our estimate while net profit of Rs57.4bn was in line with our estimate of Rs53.4bn due to higher interest cost and depreciation charge. GRM for the quarter at $8.3/bbl was marginally higher than our estimate while RIL's premium over Singapore complex GRM increased from $2.9 to $3.5/bbl due to higher crude differentials. Petchem EBIT for the quarter increased by 27.5% sequentially to Rs24bn (yoy -4%) driven by strong rebound in polymers, fibre intermediates and aromatics margins. Petchem EBIT for the quarter was 13% higher than our estimate. Gas production from KG-D6 decreased sequentially to 12.5mmscmd (yoy/qoq -1.8/-0.6mmscmd). Other income increased by 4.6% yoy to Rs21.4bn (29% of PBT). We maintain our NEUTRAL rating on the stock with a revised target price of Rs950. At the CMP, the stock is trading at 11.4x and 7.9x FY16e earnings and EV/EBITDA respectively."
"RIL's Q2FY15 net revenues stood at Rs965bn (yoy -7%, qoq +0.1%). Refining revenues during the quarter decreased by 5.8% yoy to Rs917bn (qoq +0.9%) driven by strong rupee which appreciated by 2.1% yoy while crude throughput declined by 2.3% yoy. Refining capacity utilization stood at 112%. Petchem revenues for the quarter increased by 5.1% qoq to Rs249bn driven by strong performance of polymer segment. The Oil and Gas segment revenue witnessed a decline of 5.7% yoy to Rs13.8bn due to fall in crude oil price and falling production of both oil and gas. Gas production from KG-D6 declined to 12.5mmscmd (yoy/qoq -1.8/-0.6mmscmd). RIL's Q2FY15 operating profit witnessed a sequential increase of 9.4% to Rs82.4bn driven by 27.5% qoq increase in petchem EBIT while refining EBIT of Rs37.9bn was constant on a sequential basis (yoy +19.3%). During the quarter, Singapore complex GRM decreased by 17.2% qoq to $4.8/bbl on account of weakness seen in gasoline and gasoil cracks. RIL's GRM decreased by $0.4/bbl to $8.3/bbl which was marginally higher than our estimate of $8.3/bbl. Consequently, RIL's premium over Singapore GRM increased to $3.5/bbl. Petchem EBIT for the quarter increased by 27.5% sequentially to Rs24bn (yoy -4%) driven by strong rebound in polymers, fibre intermediates and aromatics margins. Petchem EBIT for the quarter was 13% higher than our estimate. Oil and Gas EBIT for the quarter decreased by 31.8% qoq to Rs3.3bn due to lower production and fall in crude oil price."
"We expect the refining business to face headwinds going forward on account of higher capacity additions compared to demand. Lack of demand growth has weighed down on RIL's other key business vertical petchem. To our mind, lack of demand growth would have a negative impact on RIL's petchem margins. RIL's upstream foray has been reeling under uncertainty with gas production from KG D6 falling to 12.5mmscmd. Add to it the uncertainty with respect to quantum and timing of gas price increase would further weigh down on the valuation of its domestic E&P business. We maintain our NEUTRAL rating on the stock with a revised target price of Rs950. At the CMP, the stock is trading at 11.4x and 7.9x FY16e earnings and EV/EBITDA respectively," says LKP research report.
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