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RELIANCE INDS BRICS NOV 11

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					Oil & Gas                                                                                        1 December 2011



Reliance Industries                                                                              BUY
Pessimism overdone                                                                               CMP Rs778
                                                                                                 Target Price Rs910
                                                                                                 Sensex: 16,123
Sandeep Randery                            Nilesh Ghuge                                          Nifty: 4,832
+91 22 66360051                            +91 22 66360066
sandeep.randery@bricssecurities.com        nilesh.ghuge@bricsecurities.com

We expect flat capacity and stagnant oil and gas                 Estimates                                           (Rs mn)
production through FY13E for RIL. While revenue                  Y/E 31 March            2011     2012E     2013E       2014E
would see marginal decline, we expect flat margin                Revenue             2,658,106 2,833,120 2,573,005   2,666,111
growth in FY13 due to sectoral and operational                   EBITDA               380,436    434,314   440,680     447,083
headwinds. Gainful deployment of cash reserves,                  EBITDA margin (%)       14.3       15.3      17.1        16.8
which would swell to Rs603bn by FY13E, is another                PAT                  192,937    224,137   242,914     248,400
concern. We value RIL at Rs910 per share on SOTP                 FDEPS (Rs)              64.7       75.2      81.5        83.3

basis (Rs323 for refinery, Rs231 for petrochemical,              % growth               (21.1)      16.2       8.4         2.3
                                                                 P/E (x)                 12.0       10.4       9.6         9.3
Rs247 for E&P, Rs85 for others and Rs24 net cash).
                                                                 RoCE avg (%)             9.6       11.3      11.4        11.2
Initiate coverage with Buy rating as we believe
current valuation is overly pessimistic.
                                                                 Key data                                   (Rs mn)
Sectoral, operational headwinds to keep margin flat in           Bloomberg                                     RIL IN
FY13: RIL’s refining and petrochemical businesses face           Reuters                                    RELI.BO
sectoral headwinds arising from global capacity build            52-week high/low (Rs)                 1,091.4/712.0
                                                                 6-m average traded value                US$80.2mn
outs, which will lower capacity utilisation rates for refiners
                                                                 Market cap                  Rs2,505.0bn/US$48.2bn
and petrochemical players. We have modeled no rise in            Shares outstanding                       3,274.6mn
refining and petrochemical margins and flat KG D6 oil and        Shareholding pattern (September 2011)           (%)
gas production in FY13.                                          Promoters                                      44.7
                                                                 FIIs                                           17.3
12% earnings CAGR over FY11-13E: We expect RIL to                MFs & UTI                                        2.8
report 12.2% earnings CAGR over FY11-13 to Rs242bn               Banks and FIs                                    8.3
from Rs192bn on expected growth in gross refining                Others                                         26.9
margin, petrochemical production, and increasing other           Face value                                     Rs10
                                                                 Exchange rate (Rs/US$)                         52.0
income which will offset lower profits from upstream
oil and gas business. Earnings would be mainly driven by         Price performance
treasury income, which is estimated to increase 17.8%
over FY11-13.
Cash hoard to increase to Rs603bn by FY13;
deployment a challenge: We estimate RIL’s FY13 cash
on balance sheet would swell to Rs603bn (Rs112bn net
of debt) after investing Rs371.6bn towards capacity
expansion. We believe finding avenues to deploy large
amounts of cash will be a challenge for RIL.
Recommend Buy: We value RIL at Rs910 per share on
SOTP basis, which implies 17% upside from current level.         Source: Bloomberg
Clarity on oil and gas production rate increases and/or
progress of expansion plans are further upside triggers for
the stock.
    Reliance Industries                                                 1 December 2011




                                                   Contents

                                                      Section    Page



             Muted growth in existing businesses till FY13E      3

                          12% earnings CAGR over FY11-13E        6

                  Cash balance to rise to Rs603bn by FY13E       8

                                          Valuation attractive   10

                                          Risks and concerns     11

                          Appendix 1: Global refining scenario   12

                  Appendix 2: Global petrochemical scenario      16

                                           Financial summary     19




2
    Reliance Industries                                                                                                                             1 December 2011


                                             Muted growth in existing businesses till FY13E
                                             We expect existing businesses to report flat growth on absence of volume
                                             growth in refining and no increase in refining and petrochemical spreads in FY13.
                                             We have modeled flat production of oil and gas with KG D6 field at 42mmscmd
                                             for FY12 and FY13.



                                             Moderation in utilisation rates to keep refining margin flat in FY13

                                             We expect refining margin to stagnate in the US$9-10/bbl range given the likely fall in
                                             global refinery utilisation from 82% to 81% based on expected capacity additions
                                             through FY13 (see Appendix 1 for details). We believe falling utilisation rates will keep
                                             average Singapore refining margin at US$8-8.5/bbl. Sharper fall in utilisation rates
                                             beyond FY13 could be moderated by delays in capacity expansion and shutdown of
                                             unviable units.

    Exhibit 1: Global refinery utilisation
    Particulars                      2005           2006           2007     2008       2009           2010       2011E        2012E      2013E           2014E         2015E
    Refinery capacity (mbpd)          86.1           87.4          88.6     89.4       91.1           91.8         92.3           94.9       95.3           96.8           99.8
    Refinery throughput (mbpd)        74.0           74.6          75.4     75.0       73.1           74.8         75.6           76.3       77.1           77.9           78.6
    Utilisation (%)                   86%            85%           85%      84%        80%            82%          82%            80%        81%            80%            79%
    Source: British Petroleum, BRICS Research

                                             Exhibit 2: RIL GRM premium over Singapore GRM and Light-Heavy differential

                                                           12.00             Dubai-Maya differntial          RIL premium over Singapore GRM

                                                           10.00

                                                            8.00
                                                 US$/bbl




                                                            6.00

                                                            4.00

                                                            2.00

                                                              -
                                                                     FY07     FY08         FY09          FY10          FY11          FY12E          FY13E          FY14E

                                             Source: Company, BRICS Research

                                             We expect the premium enjoyed by RIL’s refineries v/s the Singapore margin to remain
                                             at US$1.5- 2.5/bbl as against US$5.5-7.5/bbl range during FY07-09 due to falling light-
                                             heavy crude oil spreads. Falling light heavy spreads could be explained by increasing
                                             global heavy oil upgrading capacity (refer Appendix 1 on page 12).

                                             Based on our outlook for global refining, we have modeled GRM of US$10/bbl for FY12
                                             and FY13. We assume it to decline to US$9/bbl in FY14. We have assumed crude oil
                                             throughput of 62mmt for FY12, FY13 and FY14 implying name plate capacity utilisation
                                             of 100% for RIL.
                                             Exhibit 3: GRM, crude throughput assumption
                                             Particulars                                                               FY12E                 FY13E                    FY14E
                                             GRM (US$/bbl)                                                                10.00               10.00                        9.00
                                             Crude throughput (mmt)                                                         62                      62                      62
                                             Source: BRICS Research




3
    Reliance Industries                                                                                                  1 December 2011


                          Global capacity additions to cap petrochemical margin

                          We have modeled flat petrochemical margin over FY13 as demand growth will be met
                          by new capacity additions especially in the Middle East (refer Appendix 2 on page 17).
                          This will put pressure on utilisation rates for global polyethylene and polypropylene
                          capacity. We model gross margin of US$500/MT for PE-naphtha and US$650/MT for
                          PP-naphtha for FY12, FY13 and FY14.

                          Polyester chain deltas are expected to moderate from record levels seen in Q3FY11
                          caused mainly by high cotton prices. We have modeled the deltas seen during H1FY12
                          through FY12 and FY13.

                          Exhibit 4: Petrochemicals margin assumption                                                            (US$/MT)
                          Particulars                                                    FY11              FY12E       FY13E          FY14E
                          Polyethylene-naphtha                                            492                500           500            500
                          Polypropylene-naphtha                                           714                650           650            650
                          PVC                                                             411                420           420            420
                          PTA-PX                                                          301                200           200            200
                          PET-PTA-MEG                                                     186                200           200            200
                          POY-PTA-MEG                                                     396                300           300            300
                          PSF-PTA-MEG                                                     286                200           200            200
                          Source: Company, BRICS Research

                          Exhibit 5: Polyester delta

                                                                           POY-PTA-MEG      PSF-PTA-MEG
                                         600

                                         500

                                         400
                                US$/MT




                                         300

                                         200

                                         100

                                           0
                                               Q3FY10    Q4FY10       Q1FY11       Q2FY11         Q3FY11      Q4FY11   Q1FY12    Q2FY12

                          Source: Company, BRICS Research

                          Exhibit 6: Cotton prices remain high                                                                    (US$/lb)
                                         300

                                         250

                                         200
                              US$/lb




                                         150

                                         100

                                         50

                                          0
                                          Jan 10    Apr 10        Jul 10        Oct 10          Jan 11       Apr 11    Jul 11    Oct 11

                          Source: Bloomberg, BRICS Research




4
    Reliance Industries                                                                                                    1 December 2011


                          Petrochemical capacity additions to go online FY13E onwards

                          We are assuming gradual growth in some of RIL’s key polymer molecule sales
                          (polyethylene and polyester) in FY12 and FY13.

                          Exhibit 7: Petrochemical volume assumptions                                                                   (MT)
                          Particulars                                                  FY11         FY12E             FY13E             FY14E
                          Polyethylene                                             970,017       1,018,518         1,069,444         1,122,916
                          Polypropylene                                          2,496,099       2,620,904         2,620,904         2,620,904
                          PET                                                      352,668         352,668          352,668            352,668
                          POY                                                      810,433         810,433          810,433            810,433
                          PSF                                                      631,023         662,574          695,703            695,703
                          Source: Company, BRICS Research


                          The US$10-12bn capacity expansion projects which include setting up of a new
                          1.5mmtpa off-gas cracker with forward integration into polyethylene and polypropylene
                          and allied chemicals as also capacity expansion in fibre intermediates and polyester is
                          expected to be commissioned FY13 onwards. It is expected that polymer capacities
                          will get commissioned first (starting FY13), followed by fiber intermediates (starting
                          FY14) and off-gas cracker (starting FY15)

                          Oil and gas production volumes assumed to be flat through FY13E

                          We are modeling flat production of 42mmscmd gas KG D6 fields for FY12 and FY13.
                          We assume growth at average of 48mmscmd in FY14E and 55mmscmd in FY15E, by
                          which time RIL-BP joint task force would have concluded their troubleshooting
                          exercise. We have assumed gas price realisation of US$4.2/mmbtu till FY14 and after
                          that gas price realisation is expected to increase to US$5.75/mmbtu, which is current
                          prevailing highest price in India. We have assumed 5% royalty payment for first 7 years
                          of production (till FY16) and 10% royalty rate afterwards. We have also considered tax
                          holiday for first seven years of production as per profit sharing contract (PSC).

                          Exhibit 8: KG D6 production and realisation assumptions
                          Particulars                                                         FY12E                FY13E                FY14E
                          KG D6 gas production (mmscmd)                                            42                  42                           48
                          Gas price realisation (US$/mmbtu)                                      4.20                4.20                    4.20
                          Oil production (kbpd)                                               15,000               15,750               16,538
                          Source: BRICS Research

                          Exhibit 9: KG D6 gas production and price realisation assumptions
                                       100               Gas price realisation (RHS)          KG D6 gas production (LHS)         7.0

                                                                                                                                 6.0
                                       80
                                                                                                                                 5.0
                                                                                                                                        US$/mmbtu




                                       60
                              mmscmd




                                                                                                                                 4.0

                                       40                                                                                        3.0
                                                                                                                                 2.0
                                       20
                                                                                                                                 1.0
                                        0                                                                                        -
                                             FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E

                          Source: BRICS Research




5
    Reliance Industries                                                                               1 December 2011


                          12% earnings CAGR over FY11-13E
                          We expect RIL to report 12.2% earnings CAGR over FY11-13 to Rs242bn from
                          Rs192bn on expected growth in gross refining margin, petrochemical production,
                          and increasing other income which will offset lower profits from upstream oil and
                          gas business.


                          Marginal decline in revenue over FY11-13E

                          We expect 1.6% decrease in sales CAGR to Rs2.57trn in FY13 from Rs2.65trn in FY11
                          based on our oil price, exchange rate and margin assumptions. We consider sales
                          growth forecasts less important than profitability forecasts due to dependence of
                          refining and petrochemical sales on oil price which is essentially passed through.

                          Exhibit 10: Crude oil price, exchange rate assumptions
                                                                    FY12E                   FY13E                FY14E
                          INR/US$                                       48                     48                    48
                          Crude oil (US$/bbl)                         100                      88                    92
                          Source: BRICS Research

                          Exhibit 11: Profit and loss account                                                  (Rs mn)
                          Particulars                                 FY11        FY12E              FY13E       FY14E
                          Net sales                               2,658,106     2,833,120       2,573,005      2,666,111
                          (Increase)/ Decrease in stock             (44,580)     (45,026)           (45,476)    (45,931)
                          Raw materials                           2,088,817     2,192,408       1,922,639      2,006,895
                          Employee cost                              33,243       35,554             35,605      35,667
                          Production expenses                        99,136      110,403            110,752     111,516
                          Selling expenses                           58,902       61,208             62,332      63,478
                          Administration expenses                    42,153       44,260             46,473      47,403
                          Total expenditure                       2,277,670     2,398,806       2,132,325      2,219,028
                          PBDIT                                     380,436      434,314            440,680     447,083
                          Depreciation                              141,208      148,411            151,900     161,512
                          PBIT                                      239,228      285,903            288,780     285,572
                          Interest                                   24,107       24,418             13,581      10,339
                          Other income                               25,428       29,873             35,294      37,936
                          PBT                                       240,550      291,357            310,493     313,168
                          Provision for tax                          44,124       67,220             67,578      64,768
                          Deferred tax                                3,710             -                  -           -
                          PAT                                       192,715      224,137            242,914     248,400
                          Minority interest                             222             -                  -           -
                          Net profit                                192,937      224,137            242,914     248,400
                          EPS (Rs/sh)                                  58.9          68.4              74.2         75.9
                          Source: Company, BRICS Research




6
    Reliance Industries                                                                                   1 December 2011


                          7.6% operating profit CAGR over FY11-13E

                          Based on our volume and spread assumptions, we expect operating profit CAGR of
                          7.6% to Rs440bn in FY13E from Rs380bn in FY11. Of the main segments, refining
                          operating profit is expected to post 21.4% CAGR to Rs193bn in FY13 from Rs131bn in
                          FY11, while petrochemical operating profit is expected post CAGR of 9.5% to Rs141bn
                          in FY13 from Rs117bn in FY11. Upstream oil and gas segment EBITDA is expected to
                          decline 20.9% CAGR to Rs88bn in FY13.

                          Exhibit 12: Segment-wise operating profit                                                (Rs mn)
                          Business                                         FY11               FY12E     FY13E         FY14E
                          Petrochemical                                  117,557          134,637      141,018       143,067
                          Refining                                       131,484          191,098      193,899       196,717
                          Oil and gas                                    140,946              91,206    88,136        89,417
                          Total                                          389,987          416,941      423,053       429,200
                          Source: Company, BRICS Research


                          Earnings to increase to Rs242bn in FY13E from Rs192bn in FY11

                          We expect net profit to increase to Rs242bn in FY13 from Rs192bn in FY11 implying
                          12.2% CAGR. Our estimate factors in 3.7% CAGR growth in depreciation charges,
                          while increase in cash on balance sheet is reflected in our model through 24.9%
                          compounded fall in interest cost and 17.8% CAGR increase in other income to
                          Rs35.2bn in FY13E from Rs25.4bn in FY11.

                          Our FY13 profit estimate will increase by 6.9% for every US$1/bbl increase in refining
                          margin and by 6.4% for 10% increase in petrochemical deltas. A 5mmscmd increase in
                          KG D6 gas output would increase FY13E profit by 1.5%.

                          Exhibit 13: Sensitivity of FY13E EPS to change in GRM, exchange rate
                                                                                   GRM (US$/bbl)
                                                                                          9               10             11
                                     Exchange

                                     (Rs/US$)




                                                                   48                69.1               74.2            79.3
                                       rate




                                                                   50                74.8               80.1            85.4
                                                                   52                80.5               86.0            91.6
                          Source: BRICS Research

                          Exhibit 14: Sensitivity of FY13E EPS to change in petchem margin, exchange rate
                                                                   Change in petrochemical margin from base case
                                                                                     -10%                0%             10%
                                     Exchange

                                     (Rs/US$)




                                                                    48               69.4               74.2            78.9
                                       rate




                                                                    50               75.8               80.7            85.7
                                                                    52               82.1               87.3            92.4
                          Source: BRICS Research

                          Exhibit 15: Sensitivity of FY13E EPS to change in KG D6 gas production,
                                      exchange rate
                                                            Change in KG D6 gas production from base case (mmscmd)
                                                                                    37                  42               47
                                     Exchange

                                     (Rs/US$)




                                                              48                   73.1                74.2             75.3
                                       rate




                                                              50                   79.6                80.7             81.9
                                                              52                   86.1                87.3             88.5
                          Source: BRICS Research




7
    Reliance Industries                                                                       1 December 2011


                          Cash balance to rise to Rs603bn by FY13E
                          We expect cash balance to increase to Rs603bn by FY13, even after Rs371.6bn
                          of capital expenditure on expansion projects in FY12 and FY13. We believe
                          gainful deployment of cash will remain a major challenge for RIL.


                          Balance sheet to have net cash over FY12E-13E

                          Given strong operating cash flows and divestment of 30% interest in 23 oil and gas
                          blocks to BP for US$7.2bn, RIL would have cash and equivalents of Rs603bn by
                          FY13E. This is after factoring in Rs371.6bn of capital expenditure in FY12E and FY13E
                          and not considering liquidation of any of the 120.4mn treasury shares. Gainful
                          deployment of cash will remain a major challenge for RIL given the size of its cash
                          hoard. We are modeling a modest increase in dividend of Rs2/share per annum from
                          FY11 level of Rs8/share.

                          Exhibit 16: Balance sheet                                                    (Rs mn)
                          Particulars                                FY11       FY12E       FY13E        FY14E
                          Total assets                           3,075,174   3,147,789    3,098,296    3,116,382
                          Gross block                            2,382,925   2,176,600    2,311,031    2,471,434
                            Less: Depreciation                    801,931      950,342    1,102,242    1,263,754
                            Net block                            1,580,994   1,226,258    1,208,789    1,207,680
                            Add: CWIP                             297,423      229,808     302,317      331,294
                          Investments                             215,962      245,962     315,962      395,962
                          Associates                               29,157       29,157      29,157       29,157
                          Others                                  186,805      216,805     286,805      366,805
                          Current assets                          980,796    1,445,762    1,271,229    1,181,447
                            Cash & bank balance                   301,390      723,896     603,760      495,308
                            Debtors                               156,952      167,286     151,927      157,425
                            Inventories                           385,194      410,556     372,862      386,354
                            Loans & advances                      134,643      141,407     140,062      139,743
                            Other current assets                    2,617        2,617        2,617       2,617
                          Total liabilities                      3,075,174   3,147,789    3,098,296    3,116,382
                          Current liabilities and provisions      574,467      607,594     556,764      574,958
                            Current liabilities                   527,165      561,364     510,535      528,729
                            Provisions                             47,303       46,229      46,229       46,229
                           Deferred tax liability                 110,709      110,709     110,709      110,709
                          Total debt                              841,062      691,062     491,062      291,062
                            Secured loans - INR                   105,785      105,785     105,785      105,785
                            Unsecured loans                       735,277      585,277     385,277      185,277
                          Minority interest                         8,022        8,022        8,022       8,022
                          Net worth                              1,540,914   1,730,402    1,931,738    2,131,631
                            Paid-up capital eq.                    29,810       29,810      29,810       29,810
                            Share premium                         454,587      454,587     454,587      454,587
                            Reserves & surplus                   1,056,531   1,246,019    1,447,355    1,647,247
                            Misc. exp                                 (14)        (14)         (14)         (14)
                          Source: Company, BRICS Research




8
    Reliance Industries                                                                                  1 December 2011


                          Exhibit 17: Business-wise break down of capex                                           (Rs mn)
                          Business                                              FY12E               FY13E           FY14E
                          Oil & gas (E&P)-KG D6                                 34,560              23,040           2,880
                          Oil & gas (E&P)-other                                  2,000               7,000          10,000
                          Refining & marketing                                  10,000              10,000          12,000
                          Petrochemicals                                             -             160,000         160,000
                          Infotel                                                5,000              35,000          40,000
                          Common                                                12,500              12,500          12,500
                          Shale gas in US                                       20,000              30,000          35,000
                          Retail marketing                                       5,000               5,000           5,000
                          Total                                                 89,060             282,540         277,380
                          Source: Company, BRICS Research

                          Exhibit 18: Capex plan and internal accruals                                            (Rs mn)
                          Year                              Net profit   Non-cash expenditure       Cash profit     Capex
                          FY11 cash on balance sheet                                                   301,390
                          FY12E                              224,137                     148,411       372,548      89,060
                          FY13E                              242,914                     151,900       394,814     282,540
                          FY14E                              248,400                     161,512       409,912     277,380
                          Total                                                                       1,478,665    648,980
                          Source: Company, BRICS Research




9
     Reliance Industries                                                                       1 December 2011


                           Valuation attractive
                           We value RIL at Rs910 per share on SOTP basis, which implies 17% upside from
                           current level. Clarity on oil and gas production rate increases and/or progress of
                           expansion plans are further upside triggers for the stock.


                           SOTP value of Rs910/share

                           We have used SOTP method to arrive at fair value for RIL, given diverse business
                           components. We value RIL's refining and petrochemical business at 5x EV/EBITDA
                           based on global peer valuation. Upstream business of KG D6 (D1, D3, MA oil and gas),
                           NEC-25 is valued using discounted cash flows based on production profile. We have
                           valued exploration upside on their 1P undeveloped reserves (522mmboe FY11 end)
                           and have given EV/boe multiple of US$5 which yields value of Rs42/share. PMT
                           business of the company is valued at Rs36/share based on EV/EBITDA multiple of 4x
                           FY13E. Investments in the organised retail business, SEZ, telecom, shale gas etc have
                           been valued at Rs85/share based on book value of investments so far. Our SOTP-
                           based target price of Rs910/share implies 17% upside from current level. Initiate
                           coverage with Buy.

                           Exhibit 19: SoTP valuation
                                                                                   Value per
                           Particulars              EBITDA (Rs mn)   EV (Rs mn)                         Comments
                                                                                  share (Rs)
                           Petrochemical                   137,827      689,137          231   5x FY13E EV/EBITDA
                           Refining                        192,499      962,493         323    5x FY13E EV/EBITDA
                           PMT                              26,965      107,861          36    4x FY13E EV/EBITDA
                           KG D6, MA and NEC-25                         502,465         169                    DCF
                                                                                                 On 1P undeveloped
                           Exploration upside                           125,331          42
                                                                                                            reserve
                           Reliance Infotel                             134,031          45           1x price/book
                           Reliance Retail                               57,300          19           1x price/book
                           Other investments                             60,997          21           1x price/book
                           Add:Net cash                                  72,766          24
                           Total                                      2,712,382         910
                           Source: BRICS Research




10
     Reliance Industries                                                                        1 December 2011


                           Risks and concerns
                           Major risk to our earnings forecasts comes from variation in gross margin of
                           petroleum and petrochemical products from our estimates. Other key risk is
                           further fall in oil and gas production from KG D6 block.



                           Gross margin variation from estimates would affect core business earnings

                           RIL's gross margin is exposed to global refining and petrochemical cycles, which could
                           be impacted in the eventuality of global macro slowdown. Earnings could come lower
                           than our estimates should margin of petroleum and petrochemical products fall below
                           our assumptions.

                           Delay in ramp of production from KG D6; new discovery of large scale

                           Earnings could come in lower than our assumptions in case there is a further fall in
                           production of oil and gas from KG D6 fields and other producing properties.




11
     Reliance Industries                                                                                     1 December 2011



                           Appendix 1: Global refining scenario
                           Refining capacity addition to lower utilisation rate

                           Global refinery crude distillation capacity would increase by 7.97mn barrels per day
                           (mbpd) between 2011 and 2015. More than half of capacity will be coming in Asia and
                           particularly in China and India. China and India would be adding 3.3mbpd and
                           0.91mbpd capacity during 2011-15. North America will be adding 0.86mbpd of refinery
                           capacity. Around 1.2mbpd of refinery capacity addition is on its way in Middle East of
                           which 66% of capacity will be added in Saudi Arabia, while United Arab Emirate (UAE)
                           will add 0.42mbpd of capacity at Ruwais refinery. Petrobras will add 0.7mbpd of
                           capacity in Brazil by 2014 to cater to increasing regional demand. Russia and
                           OECD Europe will add 0.36mbpd and 0.32mbpd capacity. We expect planned
                           additions are likely to outpace forecast demand growth for the period, thus increasing
                           spare refining capacity.

                           Increasing production of natural gas liquids (NGL’s), biofuels, gas and coal-to-liquids
                           will fulfill incremental demand of petroleum product. NGL supply is expected to
                           increase by 1.96mbpd to 7.31mbpd in 2015 due to major expansion from UAE, Qatar,
                           Iran and Saudi Arabia. Biofuels supply is expected to be 2.3mbpd by 2015 with Brazil
                           and US at the forefront.

                           Exhibit 20: Global CDU capacity addition by 2015                                           (mbpd)
                           Country/Region*                                                                            Capacity
                           India                                                                                          0.91
                           China                                                                                          3.29
                           North America                                                                                  0.86
                           Europe                                                                                         0.32
                           Other Asia                                                                                     0.32
                           Latin America                                                                                  0.70
                           Middle East                                                                                    1.22
                           Russia                                                                                         0.36
                           Total                                                                                          7.97
                           Source: BRICS Research            *See exhibit 22 for details

                           Exhibit 21: Secondary processing capacity addition (mbpd)
                                                                       2010         2011E    2012E   2013E    2014E     2015E
                            Hydrocracking/coking/FCC                    0.70          0.80    0.90    0.60     0.60       0.50
                            Desulfurisation                             1.00          1.10    1.10    0.80     1.20       1.00
                            Reforming/alkylation/isomerisation          0.40          0.30    0.30    0.20     0.20       0.20
                            Total                                       2.10          2.20    2.30    1.60     2.00       1.70
                           Source: IEA, BRICS Research




12
     Reliance Industries                                                                                             1 December 2011


                           Exhibit 22: World refinery capacity addition between 2011-2015
                           Company                             Location     Capacity (mbpd)   Completion year         Type of crude process
                           India
                           Bharat Oman Refinery                     Bina               0.12           May 11                       Heavy, sour
                           MRPL phase III                      Manglore                0.10             2012                       Heavy, sour
                           Nagarjuna Oil Corp                 Cuddalore                0.13             2012                       Heavy, sour
                           Essar                                 Vadinar               0.08             2012                       Heavy, sour
                           HPCL-Mittal Energy                  Bhatinda                0.18             2013                       Heavy, sour
                           IOCL                               Paradeep                 0.30             2015                       Heavy, sour
                           Total                                                       0.91
                           China
                           Sinopec                                Beihai               0.20             2011                             Heavy
                           Petrochina                 Sichuan/Pengzhou                 0.20             2012                             Heavy
                           Sinopec                             maoming                 0.24             2012                             Heavy
                           Petrochina                           Huludao                0.20             2014                             Heavy
                           Sinochem                           Quanzhou                 0.24             2014                             Heavy
                           Petrochina                           Qinzbou                0.20             2015                             Heavy
                           Petrochina                           Lanzhou                0.08             2015                                 NA
                           Petrochina/Rosneft                     Tianjin              0.30             2015                                 NA
                           Petrochina/PDVSA                      Jieyang               0.40             2015                                 NA
                           Petrochina                            Yunnan                0.20             2015                             Heavy
                           Sinopec/KPC                        Zhanjiang                0.30             2015                             Heavy
                           Sinopec                           Caofeidian                0.20             2015                                 NA
                           Sinopec                                Chang                0.20             2015                                 NA
                           Sinopec                               Yangzi                0.09             2015                                 NA
                           CNOOC                                Huizhou                0.24             2015                             Heavy
                           Total                                                       3.29
                           North America
                           Conocophillips                    Wood river                0.05             2011                             Heavy
                           PEMEX                                    Tula               0.30             2012               Maya (Heavy, sour)
                           PEMEX                               Minatitlan              0.19             2012                                 NA
                           Motiva                             Port arthur              0.33             2012        Heavy, sour and high acid
                           Total                                                       0.86
                           Europe
                           Repsol                       Cartagena,Spain                0.11             2011                       Heavy, sour
                           Tupras                          Aliaga,Turkey               0.21             2015                             Heavy
                           Total                                                       0.32
                           Other asia
                           Byco Petroleum                  Baluchisthan                0.12             2012                             Heavy
                           Vietnam                              Nghison                0.20             2015        SU TU DEN (Light, sweet)
                           Total                                                       0.32
                           Latin america
                           Petrobras                        Abreu-e-lima               0.23             2012                             Heavy
                           Petrobras                 COMPERJ Phase I                   0.17             2013      Marlin (Heavy, intermediate)
                                                                                                                 Heavy oil from Campos basin
                           Petrobras                  Premium I Phase I                0.30             2014
                                                                                                                and light oil from pre-salt layer
                           Total                                                       0.70
                           Middle East
                           Saudi Aramco                     Jubail,Saudi               0.40             2012                        Arab heavy
                           Saudi Aramco             Yanbu-RSRC, Saudi                  0.40             2014                        Arab heavy
                           Takreer                  Ruwais refinery, UAE               0.42             2014                             Heavy
                           Total                                                       1.22
                           Russia
                           Gazprom                       Salavat refinery              0.12             2012                                 NA
                           Rosneft                       Tuapse refinery               0.10             2012                                 NA
                           Lukoil                         Ukhta refinery               0.07             2012                                 NA
                           Lukoil                     Atinpinsky refinery              0.07             2013                                 NA
                           Total                                                       0.36
                           Source: BRICS Research




13
     Reliance Industries                                                                                                 1 December 2011


                           As a result of spare refinery capacity and fulfillment of incremental demand by oil
                           products bypassing refinery system, refinery utilisation will further reduce. Average
                           global refinery utilisation during 2005-2010 was 84%; we expect it to come down to
                           79% by 2015.

                           Exhibit 23: NGLs, biodiesel production                                                                        (mbpd)
                           Particulars                        2010         2011          2012                 2013           2014           2015
                           NGL                                 5.35         5.88         6.33                 6.69           6.97           7.31
                           Biofuels                            1.80         1.90         2.00                 2.20           2.30           2.30
                           Total                               7.15         7.78         8.33                 8.89           9.27           9.61
                           Source: IEA, BRICS Research


                           High demand for heavy, sour crude to prove unfavourable for complex refiners

                           Run-up of oil prices in the first half of 2011 caused light-heavy spread to widen, thereby
                           benefiting complex refiners. The differential between heavy and light crude is expected
                           to decline as heavy crude oil production falls short of incremental capacity addition of
                           heavy crude oil processing refineries. Incremental heavy crude oil production would be
                           about 1.06mbpd, while heavy and sour crude oil processing capacity addition would
                           be 4.86mbpd (as measured by upgrading capacity) by CY15. Moreover, OPEC
                           projects that world’s balance of light v/s heavy crude oil will tilt towards lighter crude oil
                           through 2015, as production of medium and light sweet crude oil outpaces that of
                           heavy sour varieties.

                           Exhibit 24: Incremental heavy crude oil production                                                            (mbpd)
                                            300

                                            250

                                            200
                               ('000 bpd)




                                            150

                                            100

                                            50

                                             0
                                                  2011E     2012E       2013E        2014E            2015E          2016E          2017E

                           Source: BRICS Research

                           Exhibit 25: Sweet-sour crude differential                                                                (US$/bbl)

                                                                            Dubai-Maya
                             20

                             15

                             10

                              5

                              0

                             -5
                              Jan 05               Jan 06      Jan 07       Jan 08           Jan 09             Jan 10          Jan 11

                           Source: Bloomberg, BRICS Research




14
     Reliance Industries                                                                                1 December 2011


                           Exhibit 26: Production volume of various crude oil in 2010




                           Source: IEA, BRICS Research

                           Exhibit 27: RIL and Singapore GRM
                                         16                         Singapore GRM   RIL GRM
                                         14
                                         12
                                         10
                               US$/bbl




                                         8
                                         6
                                         4
                                         2
                                         0
                                              FY07   FY08    FY09     FY10      FY11    FY12E   FY13E   FY14E   FY15E

                           Source: Company, BRICS Research


                           Refining margin bounced back in FY11 from recessionary lows that prevailed for much
                           of 2009 and margin improved throughout 2011. Singapore margin is at 16 week high
                           at US$9.1/bbl in Q2FY12. We expect margin to stabilise at this level for next two years.




15
     Reliance Industries                                                                         1 December 2011


                           Appendix 2: Global petrochemical scenario
                           New capacity to dent petrochemical margin

                           Petrochemical margin is declining after reaching high in 2008. Spreads slumped nearly
                           30% since September 2009 due to new capacity additions. Global ethylene market is
                           in a state of oversupply. Ethylene production was 122mmt in 2010 which shows
                           operating rate of 85%. By FY13, 8.6mmt of additional ethylene/polyethylene capacity
                           will be added. In FY10, polypropylene demand was 48.5mmt, while global capacity
                           was 59mmt. Additional capacity of 1.6mmt will be added globally by FY13. Five
                           ethylene crackers have already commenced work in late 2008 and 2009 in the Middle
                           East. For polyethylene, the Middle East exports are expected to go up to 11.7mmt by
                           2013 from 4.3mmt in 2008. Impact of oversupply will be felt by Middle East
                           petrochemical plants as well. Plants starting in Saudi, Kuwait and Qatar are expected
                           to operate at 90% capacity utilisation on the higher side, while new plants are expected
                           to have utilisation of around 75%. However, given technically superior plants, we
                           expect Reliance’s petrochemical margin to be better than peers, in the range of 13-
                           14% for FY12 and FY13.

                           Exhibit 28: Global ethylene, propylene capacity                                  (mmt)
                             140                                Ethylene     Propylene
                             120

                             100

                              80

                              60
                              40

                              20
                               0
                                              2008                         2009                  2010

                           Source: Company, BRICS Research




16
     Reliance Industries                                                                                             1 December 2011


                           Exhibit 29: New polymer capacity additions in Middle East
                                                                                               Product and capacity           Expected
                           Country                                             Project
                                                                                                            (tonne)      completion year
                           Kuwait
                           PIC                                               Olefins III          Ethylene-1,400,000               2015
                           Oman
                                                                               Sohar
                           Dow Chemical, OOC and Oman
                                                                       Petrochemicals        Polyethylene -1,000,000               2012
                           government
                                                                             Complex
                           Qatar
                                                                                           Ethane cracker –1,300,000
                                                                           Ras Laffan
                                                                                                     LLDPE –570,000
                           ExxonMobil                                  Petrochemicals                                              2012
                                                                                                      LDPE –420,000
                                                                             Complex
                                                                                             Ethylene glycol –700,000
                                                                                                   Ethylene –900,000
                                                                                                  Propylene –180,000
                           Qatar Holding Intermediate Industries               Qatar
                                                                                             Polypropylene – 700,000
                           Co. (Waseeta) and Honam                     Petrochemicals                                              2013
                                                                                                    Styrene –380,000
                           Petrochemical                                     Complex
                                                                                                Polystyrene –220,000
                                                                                            Other aromatics –250,000
                                                                     Integrated olefins
                           Shell Group/ QP                                                 Ethane cracker –1,600,000               2012
                                                                              complex
                           Saudi Arabia
                                                                                                  Naphtha cracker –
                                                                           Ras Tanura                      1,200,000
                           Saudi Aramco /Dow Chemical              Integrated Refinery           Propylene –400,000
                                                                                                                                   2015
                           Company                                   & Petrochemicals             Benzene –400,000
                                                                     Complex Phase 2            Paraxylene and other
                                                                                                polyolefins –460,000
                           JANA (Jubail Chemical Industries
                                                                     Epoxy Expansion             Ethylene –1,350,000               2011
                           Company)
                                                                                Jubail
                           Saudi Kayan                                 Petrochemicals        Polypropylene –350,000                2011
                                                                             Complex
                                                                         PetroRabigh                Ethane cracker –
                           Saudi Aramco/ Sumitomo Chemical                  Refining &             30,000,000 cu.ft/d.
                                                                                                                                   2014
                           Company                                     Petrochemicals             Napththa cracker –
                                                                             Complex                       3,000,000
                                                                                           Ethane cracker –1,200,000
                           Saudi Polymers Co. (SPC) -50/50 JV                  Jubail               Hexene –100,000
                           between Chevron Phillips and                Petrochemicals        Polyethylene –1,100,000               2011
                           National Petrochemicals Co.                       Complex         Polypropylene –400,000
                                                                                               Polystyrene –200,000
                                                                                            Ethylene and propylene –
                                                                     Jubail Polyolefins
                           SIPCHEM                                                                         1,300,000               2012
                                                                             Complex
                                                                                            Petrochemicals –800,000
                                                                       Ethane Cracker
                           Abu Dhabi Polymers Company                                            Ethylene –1,500,000               2013
                                                                             Package
                           Iran
                                                                                                  Ethylene –675,000
                                                                      Ethan-Ethylene-
                           NPC/ Bushehr Petrochemicals Co.                                 Propane/ Butane –195,000                2013
                                                                   Methanol Extraction
                                                                                                Methanol –1,970,000
                                                                                                Ethylene –1,000,000
                           NPC/ Gachsaran Petrochemicals Co.         Gachsaran Olefin                                              2011
                                                                                                         C3 –90,000
                                                                       12th Ammonia /
                                                                                                  Ethylene –600,000
                           NPC                                         Urea (Golestan                                              2013
                                                                                                 Propylene –350,000
                                                                   Petrochemicals co.)
                           Source: Alpen Capital, BRICS Research




17
     Reliance Industries                                                                                        1 December 2011


                           Exhibit 30: Ethylene and propylene capacity addition in India, China
                           Country                                 Project   Capacity (mmtpa)   Feedstock   Expected completion year
                            China                Sichuan Petrochemical                   0.80     Naphtha                      2013
                            China                                  Wuhan                 0.80     Naphtha                      2013
                            China                Sichuan Petrochemical                   0.60     Naphtha                      2013
                            India                        ONGC (OPAL)                     1.80     Naphtha                      2014
                           Source: Alpen Capital, BRICS Research

                           Exhibit 31: Polypropylene-propylene delta                                                    (US$/MT)

                             300
                             250
                             200
                             150
                             100
                              50

                               0
                                    Q1FY07 Q3FY07 Q1FY08 Q3FY08 Q1FY09 Q3FY09 Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12
                           Source: Company, BRICS Research

                           Exhibit 32: HDPE-naphtha delta                                                               (US$/MT)

                             800
                             700
                             600
                             500
                             400
                             300
                             200
                             100
                               0
                                    Q1FY07 Q3FY07 Q1FY08 Q3FY08 Q1FY09 Q3FY09 Q1FY10 Q3FY10 Q1FY11 Q3FY11 Q1FY12

                           Source: Company, BRICS Research


                           Polyester capacity addition to moderate

                           Global polyester capacity is estimated at ~70mmt, whereas overall production was
                           estimated at ~49mmt in 2010. Polyester demand is likely to outpace capacity addition
                           in next 3-4 years, which would increase utilisation.

                           Exhibit 33: Global polyester capacity expansion




                           Source: JBF Industries; BRICS Research




18
     Reliance Industries                                                                                              1 December 2011



 Financial summary
 Income statement                                           (Rs mn)      Balance sheet                                                   (Rs mn)
 Y/E 31 March                       2011    2012E     2013E     2014E    Y/E 31 March                      2011 2012E          2013E        2014E
 Revenue                       2,658,106 2,833,120 2,573,005 2,666,111   Net fixed assets             1,878,417 1,456,066   1,511,106    1,538,974
 Revenue growth (%)                  30.5      6.6      (9.2)      3.6   Investments                    186,805 216,805       286,805      366,805
 Operating exp                 2,277,670 2,398,806 2,132,325 2,219,028   Current assets                 980,796 1,445,762   1,271,229    1,181,447
 EBITDA                          380,436 434,314 440,680 447,083          Inventories                   385,194 410,556       372,862      386,354
 EBITDA margin (%)                   14.3     15.3      17.1      16.8    Sundry debtors                156,952 167,286       151,927      157,425
 Depreciation                    141,208 148,411 151,900 161,512          Cash & bank balance           301,390 723,896       603,760      495,308
 EBIT                            239,228 285,903 288,780 285,572          Loans & advances              134,643 141,407       140,062      139,743
 MTM profit / (loss)                   —        —          —        —    Other current assets             2,617     2,617       2,617        2,617
 Other income                     25,428    29,873    35,294    37,936   Total assets                 3,075,174 3,147,789   3,098,296    3,116,382
 Interest paid                    24,107    24,418    13,581    10,339   Net worth                    1,548,936 1,738,425   1,939,760    2,139,653
 PBT                             240,550 291,357 310,493 313,168         Share capital                   29,810 29,810         29,810       29,810
 Tax                              47,834    67,220    67,578    64,768   Reserves & surplus           1,519,126 1,708,614   1,909,950    2,109,843
 PAT                             192,937 224,137 242,914 248,400         Minority interest                   —         —           —            —
 Minority interest                    222       —          —        —    Total debt                     841,062 691,062       491,062      291,062
 EO income                             —        —          —        —    Secured loans                  105,785 105,785       105,785      105,785
 APAT                            192,937 224,137 242,914 248,400         Unsecured loans                735,277 585,277       385,277      185,277
 PAT growth (%)                    (21.0)     16.2        8.4      2.3   Current liabilities & prov     574,467 607,594       556,764      574,958
 Shares o/s (mn)                   3,275     3,275     3,275     3,275   Current liabilities            573,394 607,594       556,764      574,958
 Fully diluted o/s shrs (mn)           —        —          —        —    Provisions                       1,073        —           —            —
 FDEPS (Rs) recurring                64.7     75.2      81.5      83.3   Net deferred tax liab          110,709 110,709       110,709      110,709
                                                                         Total liabilities            3,075,174 3,147,789   3,098,296    3,116,382
 Cash flow statement                                        (Rs mn)
 Y/E 31 March                       2011    2012E     2013E     2014E
                                                                         Key ratios
 PBT                             240,550 291,357 310,493 313,168
 Depreciation                    141,208 148,411 151,900 161,512         Y/E 31 March                    2011      2012E       2013E        2014E
 Amortisation                         —         —         —         —    Valuation ratios
 Interest paid                    24,107    24,418    13,581    10,339   PE (x)                           12.0       10.4         9.6          9.3
 Tax paid                         44,124    67,220    67,578    64,768   CEPS (Rs)                       103.1      113.8       120.6        125.2
 Chg in working capital           17,586   (8,261)     3,569     (477)   PCE (x)                           7.5        6.8         6.5          6.2
 Int/div in other income              —         —         —         —    BVPS (Rs)                         520        531         592          653
 Other operations                     —         —         —         —    Price/Book (x)                    1.5        1.5         1.3          1.2
 CF from operations (a)          379,684 387,632 411,964 419,775         EV/EBITDA (x)                     8.1        5.8         5.5          5.2
 Capital expenditure           (268,758) 273,940 (206,940) (189,380)     EV/Revenue (x)                    1.2        0.9         0.9          0.9
 Chg in investments             (79,726) (30,000) (70,000) (80,000)      Dividend yield (%)                1.0        1.3         1.5          1.8
 Other investing act              21,383        —         —         —    Cash flow yield (%)               2.1       24.8         5.3          5.9
 Int/div in other income              —         —         —         —    Performance ratios
 CF from investments (b)       (327,101) 243,940 (276,940) (269,380)     Raw material to sales (%)        78.6       77.4        74.7         75.3
 Free cash flow (a+b)             52,583 631,572 135,024 150,395         SGA to sales (%)                  3.8        3.7         4.2          4.2
 Equity raised/(repaid)              675        —         —         —    Effective tax rate (%)           19.9       23.1        21.8         20.7
 Debt raised/(repaid)            195,007 (150,000) (200,000) (200,000)   PAT margin (%)                    7.3        7.9         9.4          9.3
 Interest paid                  (24,107) (24,418) (13,581) (10,339)      DPS (Rs)                          8.0       10.0        12.0         14.0
 Dividend (incl tax)            (24,309) (34,649) (41,578) (48,508)      Dividend payout ratio (%)          12         13          15           17
 Other fin activities           (32,478)        —         —         —    Return ratios
 CF from financing (c)           114,789 (209,067) (255,160) (258,847)   RoE avg (%)                      13.0       13.6        13.2         12.2
 Net chg in cash (a+b+c)         167,372 422,505 (120,135) (108,452)     RoCE avg (%)                      9.6       11.3        11.4         11.2
 Opening balance                 138,908 301,390 723,896 603,760         Fixed asset turnover (x)           —          —           —            —
 Closing balance                 301,390 723,896 603,760 495,308         Working capital ratios
                                                                         Inventory (days)                   53         —           —            —
                                                                         Payable (days)                     92         —           —            —
                                                                         Receivable (days)                  22         22          22           22
                                                                         Working capital (days)           (18)         22          22           22
                                                                         Leverage ratios
                                                                         Interest cost (%)                  —          —            —            —
                                                                         Net debt/equity (x)               0.3         —         (0.1)        (0.1)
                                                                         Interest coverage (x)             9.9       11.7        21.3         27.6




19
     Reliance Industries                                                                                       1 December 2011




                                              BRICS RECOMMENDATION SCALE

                                  BUY:         More than 15% upside
                                  ADD:         Upside up to 15% (between 0% and 15%)
                                  REDUCE: Downside up to 15% (between 0% and –15%)
                                  SELL:        More than 15% downside


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