Though we expect growth in the exploration and production (E&P) segment to continue in coming quarters and refining performance to improve on rising throughput and stabilizing margins, petrochemicals might under-perform given rising West Asian (Mid-East) capacities.
- Reliance Industries Limited (RIL)
With D6 volume now averaging 60m cmd, we expect RIL to meet our full year (FY10) target of 40m cmd production. With GAIL’s HBJ pipeline still far from complete, the estimate of 80m cmd for FY11 might be hit slightly, neutralized possibly, though, by higher volumes later.
Though Reliance’s (RIL) refining margin was higher than our estimate ($5.5), EBIT margin at $2.4/bbl matched our estimate, implying higher costs. We expect RIL’s 4Q refining margin performance to improve from 9M levels, in line with rising regional and global margins, on the back of higher winter demand.
With E&P going strong and refining possibly past the worst, we see a coming petrochemicals capacity glut and possible RNRL case judgement to be key factors weighing on valuations. Any possible inorganic or organic growth plans would also be key to valuations.
We slightly revise FY10-12e earnings – by 1-2%, to adjust for 9M performance. We raise target price to Rs1,120, adjusting for debt and investments. Maintain HOLD.
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