(CMP/TP: `732/1,006) (Buying Range: `732 to `747) Core business margins to stabilise: RIL reported robust refining margins of US$10.2/bbl in 1HFY2012. However, during 3QFY2012, Singapore gross refining margins (GRMs) have declined to US$7-8/bbl. Nevertheless, we do not expect gross refining margins to fall below the current level consequent to higher demand from the emerging economies. RIL v/s Benchmark Singapore GRMs (US $/bbl) 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0-2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 RIL GRMs Source: Company, Angel Research 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 Singapore GRMs 1QFY12 2QFY12 Ramp-up in KG-D6 could re-rate the stock: RIL s upstream segment still has significant upside in store, considering the huge untapped resources. Although RIL is producing natural gas below its potential 80mmscmd from KG-D6 due to constraints over reservoir pressure, we believe it will ramp up its production over the medium term with the help of BP s technical expertise. Also, RIL has recently concluded several three-year exploration phases on the prospective eastern coast and is expected to commence with the development phase soon. RIL expects to commence significant E&P activities from CY2014. Foray into newer businesses: RIL has been eyeing inorganic routes for diversifying its asset portfolio by entering into newer ventures, such as retail and telecom, on the back of significant cash pile (`61,490cr as on September 30, 2011) and treasury stocks. Initiatives such as shale gas acquisitions, with in-place reserves of ~12TCF, could prove to be a potential trigger for the stock in the long term.
Outlook & Valuation: RIL s extant businesses (refining and petrochemicals) continued to perform well during the quarter. However, there are some concerns on the KG basin gas output. t Nevertheless, ertheless we believe RIL s deal with BP is a positive one, as the combined expertise of both the parties will result in optimization of producing blocks and enhancement of resources in exploratory blocks. Thus, the ramp-up in producing fields would improve investor confidence. We maintain our Buy view on RIL with an SOTP-based target price of `1,006. Valuation Snapshot Valuations based on SOTP Business segment `/share Refining (EV/EBITDA 7x) 432 Petrochemical (EV/EBITDA 7x) 92 KG-D6 Gas (DCF) 168 KG-MA Oil (DCF) 45 NEC-25 (EV/boe 5.5x) 5 54 D3 (EV/boe 5.5x) 60 D9 (EV/boe 5.5x) 35 Shale Gas ventures (EV/boe 3.5x) 60 Other prospective basins 30 Retail 15 Investment/Others 36 Total EV 1,029 Net debt (23) Equity Value (`) 1,006 Y/E Sales OPM PAT EPS ROE P/E P/BV EV/EBITDA EV/Sales March (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x) FY2012E 316,591 12.9 23,063 70.5 14.0 10.4 1.3 5.6 0.7 FY2013E 328,147 13.5 25,60 78.2 13.8 9.4 1.1 5.0 0.7
Profit & Loss Statement (Consolidated) Total operating income 203,740 265,811 316,591 328,147 % chg 34.7 30.5 19.1 3.7 Balance Sheet (Consolidated) SOURCES OF FUNDS Equity Share Capital 2,978 2,981 2,981 2,981 EBITDA 30,894 38,961 40,969 44,172 Reserves& Surplus 138,598 151,112 171,458 194,038 (% of Net Sales) 15.2 14.7 12.9 13.5 Shareholders Funds 141,576 154,094 174,440 197,021 Depreciation& Amortisation 10,946 14,121121 11,967 12,542 Total Loans 64,606606 84,106 62,500 54,830 Interest & other Charges 2,060 2,411 2,150 1,792 Deferred Tax Liability 10,678 11,071 12,714 14,839 Other Income 2,185 2,543 3,450 3,795 Total Liabilities 216,860 250,073 250,457 267,492 (% of PBT) 7.6 10.6 11.4 11.3 APPLICATION OF FUNDS Recurring PBT 20,074074 24,972 30,302302 33,633 Gross Block 224,125 238,293 254,973 275,371 Extraordinary Income/Exp 8,606 (917) - - PBT (reported) 28,680 24,055 30,302 33,633 Tax 4,256 4,783 7,272 8,072 (% of PBT) 17.4 24.8 24.0 24.0 PAT (reported) 24,424 19,272 23,029 25,561 Minority interest (MI) 79.6 22.0 34.0 41.0 PAT after MI (reported) 24,503 19,294 23,063 25,602 ADJ. PAT(core) 18,572 18,976 23,063 25,602 % chg 29.8 2.2 21.5 11.0 Less: Acc. Depreciation 63,934 80,193 92,160 104,702 Net Block 160,191 158,099 162,813 170,668 Capital Work-in-Progress 17,034 29,742 15,000 17,172 Investments 13,112 21,596 21,596 21,596 Current Assets 69,106 98,080 112,131 120,100 Current liabilities and provisions 42,586 57,445 61,085 62,046 Net Current Assets 26,520 40,634 51,047 58,054 Mis. Exp. not written off 2 1 1 1 Total Assets 216,860 250,073 250,457 267,492
Cash Flow Statement (Consolidated) Profit before tax 28,680 24,055 30,302 33,633 Depreciation 14,001 16,820 11,967 12,542 Change in Working Capital (5,939) (13,501) (260) 654 Less: Other income (1,786) (1,722) (1,300) (2,003) Direct taxes paid (3,140) (4,243) (7,272) (8,072) Cash Flow from Operations 31,815 33,338 33,437 36,755 (Inc.)/ Dec. in Fixed Assets (23,017) (33,604) (1,938) (22,570) (Inc.)/ Dec. in Investments 2,645 (8,102) - - Key Ratios Valuation Ratio (x) P/E (on FDEPS) 12.9 12.6 10.4 9.4 P/CEPS 7.4 6.6 6.2 5.7 P/BV 1.5 1.4 1.3 1.1 EV/Sales 1.3 1.0 0.7 0.7 EV/EBITDA 8.6 6.6 5.6 5.0 Per Share Data (`) EPS (fully diluted) 56.7 58.0 70.5 78.2 (Inc.)/ Dec. in loans & adv. (19) - 16 Cash EPS 99.0 111.0 117.5 128.0 Other income 2,160 9,666 3,450 3,795 DPS 7.0 8.5 9.0 10.0 Cash Flow from Investing (18,231) (32,040) 1,511 (18,759) Book Value 475 517 585 661 Issue of Equity 513 196 - - Returns (%) Inc./(Dec.) in loans (5,822) 20,701 (21,606) (7,670) ROCE (Pre-tax) 94 9.4 10.6 11.6 12.22 Dividend Paid (Incl. Tax) (2,219) (2,431) (2,683) (2,981) Angel ROIC (Pre-tax) 13.5 13.2 15.1 15.9 Others (14,907) (8,378) (507) 317 ROE 14.1 12.8 14.0 13.8 Cash Flow from Financing (22,436) 14,950 (24,796) (10,334) Turnover ratios (x) Inc./(Dec.) in Cash (8,851) 16,248 10,152 7,661 Inventory / Sales (days) 48.8 48.6 46.5 49.6 Opening Cash balances 22,742 13,891 30,139 40,291 Receivables (days) 13.4 14.4 14.3 15.2 Closing Cash balances 13,891 30,139 40,291 47,953 Payables (days) 78.8 70.3 70.1 74.4
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