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Reliance Industries Ltd (updated - 23 Jan 2010)
A depressed market saw something to cheer as Reliance Industries’ (RIL) revenues came in on the higher side of analysts’ estimates. High global inventories and lower demand had hit gasoline and distillate realisations, so the market expected revenue growth for December 2009 quarter to be relatively more muted - volume growth was expected to be strong due to higher capacities. The 92 per cent year-on-year growth reflected the additional revenues from the SEZ refinery numbers, which was commissioned end-December 2008 and displayed in RIL’s numbers post the merger of Reliance Petroleum.

Refining and marketing segment revenues were up 21 per cent sequentially (140 per cent year-on-year) to Rs 48,000 crore, as the RPL’s (SEZ) refinery operated at 115 per cent and the domestic refinery at 100 per cent capacity. RIL’s gross refining margins (GRMs) were virtually flat (sequentially) at $5.9 per barrel for the December 2009 quarter but fell by 40 per cent year-on-year. This is in contrast to a sharp dip seen in benchmark Singapore GRMs, which according to analysts touched its lowest levels in six years, averaging $1.13 per barrel for the December quarter as supply clearly outstripped demand. Lower margins resulted in the segment’s profits falling 27 per cent yearon-year to Rs 1,379 crore for the quarter.

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The upstream (exploration and production) business has seen consistent news flow on new discoveries in the Krishna Godavari (KG) D6 block and segment revenue is up 20 per cent sequentially and more than triple over December 2008 numbers, to Rs 3,530 crore.

Petrochem revenues also clocked in good growth and the company saw a volume boost based on strong domestic demand, in conjunction with low industry inventories allowing better realisation in December 2009 quarter. This pushed through a 17 per cent yearon-year increase in revenues to Rs 14,756 crore. The numbers looked good, positioned against the lower base of the previous year’s quarter.

Overall, expenses for the company doubled year-onyear, mainly because of higher crude oil inputs for the new SEZ refinery. However, the company has felt the pinch of the lower GRM environment and higher depletion rate in KG D6 fields compared to PMT. Cumulatively, these factors pulled operating profit margins down considerably (by 4.36 percentage points year-onyear) to 13.8 per cent for the December 2009 quarter, though in absolute terms, operating profits were higher by 46 per cent at Rs 7,844 crore. A dip in other income, higher interest charges and tax outgo meant that post tax profits increased by only 16 per cent year-on-year to Rs 4,008 crore.

The outlook for the company is relatively better, according to sector analysts, as GRMs are expected to trend upwards over the year. This is on the back of expected distillate demand growth in Asia and supply rebalanced by refinery capacity rationalisations and shutdowns globally.

The stock has underperformed the Sensex by 3.7 per cent in the last 3 months and closed flat in the day’s trading at Rs 1,053.15, outperforming the Sensex marginally, which was down 1.14 per cent for the day.
source - BS

Reliance Industries Ltd (updated - 06 Jan 2010)
The sale of a part of Reliance Industries’ (RIL) treasury stock through a block deal on the bourses inaugurated trading in 2010. RIL garnered almost Rs 2,675 crore by selling 25.85 million shares (held by a trust, owned by aRIL subsidiary) to LIC at an average price of Rs 1,035 per share or a 5 per cent discount to the previous closing price. The discount isn’t unusual, say analysts, given the size of the deal.

However, the price is lower than the sale price of Rs 2,125 (pre-bonus and pre-dividend) of the earlier deal done in mid-September 2009, when RIL had raised Rs 3,188 crore by selling treasury stock to institutional investors.

With the latest move, RIL has added to its cash kitty (of Rs 19,421 crore as on September 2009), which it could use for its estimated $12 billion bid for petrochemicals’ major Lyondell Basell and exploration projects. If required, RIL could also tap the remaining treasury stock of 333.85 million, valued at Rs 36,000 crore.

The markets, however, were not impressed. Over two days, the stock lost 1.8 per cent as against 1.3 per cent gain in the Sensex. Notably, the stock has also underperformed the markets since mid-September — down by about 2 per cent as against Sensex’s 7.5 per cent rise. The underperformance can be attributed to factors like pending gas dispute with RNRL, overhang of its bid to acquire Lyondell and uninspiring performance.

While analysts believe that RIL’s gross refining margins (GRMs) have in all probability bottomed out and should stay above the lows touched earlier, the petrochemical business may remain under pressure in the medium term till demand picks up.

The buffer for the stock is, however, on the exploration front. Last month, RIL hit a gas gusher with three reservoir zones in the D-3 block of Krishna-Godavari (KG) basin. This heralds its third consecutive find in this block, in which RIL owns 90 per cent stake and UK-based Hardy Oil 10 per cent.

While the regulators’ decision on commerciality of the block is awaited, analysts say that Hardy had earlier indicated prospective resources of 695 million barrels of oil equivalent. Based on RIL’s stake in the D3 block, analysts have pegged its value at Rs 21-30 per share.

This find emphasises eastern India’s offshore potential where RIL has 10 blocks in the KG basin and 8in the Mahanadi basin. Currently, RIL has one rig operational in an exploration block in Oman and three rigs in India (in D6, D3 and Cauvery Basin). It is expected to add two more in 2010, which indicates that RIL’s exploration activities are likely to pick up in the current year.

This find emphasises eastern India’s offshore potential where RIL has 10 blocks in the KG basin and 8in the Mahanadi basin. Currently, RIL has one rig operational in an exploration block in Oman and three rigs in India (in D6, D3 and Cauvery Basin). It is expected to add two more in 2010, which indicates that RIL’s exploration activities are likely to pick up in the current year.

The ramp-up in production from the KG-D6 block is the main focus currently; it recently achieved aflow rate of 80 million standard cubic metres. The KG-D6 block is valued at Rs 241 per share in terms of oil production and potential upsides. RIL’s other fields such as NEC-25, CBM Sohagpur and D9 are valued at Rs 226 per share, as per an India Infoline report.

At Rs 1,069.55, the stock trades at about 14 times 2010-11 estimates. Two key factors loom over the stock -the outcome of the court case judgement due in the next couple of months and the Lyondell acquisition bid. Positives on these fronts and new oil and gas discoveries will act as a trigger for the stock in the nearto-medium term.
source - BS