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Recommendations India

Reliance Industries 3QFY2014 performance highlights and results update

January 20, 2014, Monday, 10:22 GMT | 06:22 EST | 15:52 IST | 18:22 SGT
Contributed by Angel Broking

For 3QFY2014, Reliance Industries (RIL) reported a lower-than-expected top-line performance. However, its bottom-line was broadly in line with our estimate. We maintain our Buy recommendation on the stock.
Refining and Petrochemical segment boosts top-line: RIL’s 3QFY2014 net sales increased by 10.3% yoy to Rs.103,521cr (below our estimate of Rs.117,488cr) mainly led by higher Refining segment sales (+10.1% yoy to Rs.95,432) and Petrochemicals segment sales (+14.6% yoy to Rs.25,280cr). RIL’s KG-D6 gas production fell to 12mmscmd compared to 24mmscmd in 3QFY2013. However, the company stated that it has started production from MA 8 field in January 2014, which is expected to add ~2.5mmscmd of gas production from FY2015. EBITDA falls 9.0% yoy: RIL’s EBITDA fell 9.0% yoy to Rs.7,622cr, on account of lower profits from the Refining and Oil & Gas segments. The Refining segment’s EBIT declined by 8.5% yoy to Rs.3,141cr due to lower GRMs and lower throughput. The GRM stood at US$7.6/bbl in 3QFY2014 compared to US$9.6/bbl in 3QFY2013.
Lower depreciation and higher other income mutes PAT decline: During the quarter, the depreciation (including depletion) expense declined by 12.8% yoy to Rs.2,143cr while the other income increased by 32.5% yoy. Hence, the company’s PAT was flat yoy at Rs.5,511cr (broadly in-line with our estimate of Rs.5,508cr).
Outlook and valuation: For 3QFY2014, RIL’s Petrochemicals segment’s profit reported improvement; however, its Oil & Gas segment’s profitability continued to decline due to decline in production from its KG D6 block. Looking ahead, we expect production from the KG D6 block to increase gradually from FY2015. Moreover, higher gas prices and the recent improvement in GRMs are likely to drive its earnings growth in FY2015. Hence, we recommend a Buy rating on the stock.