We retain our ?neutral? rating on Reliance Industries (RIL), but raise our target price to Rs 910 (from Rs 845) to factor in rupee depreciation. We value RIL as the sum of its refining, petchem, E&P and other businesses. We value the downstream segments at 6x FY15e EV/Ebitda and other segments on DCF.
We raise our FY14e/15e estimates by 8-15% as we revise our $/INR forecast to 60.5/62.0 and have incorporated the latest debt and capex data.
RIL?s Q2FY14 results were in line with our and Street expectations, with net profit of Rs 5,490 crore, up 2.6% q-o-q and 2.1% y-o-y. RIL reported gross refining margin (GRM) of $7.7 per barrel ($8.4 per barrel in Q1Y14) as product cracks weakened in August/September. But with the rupee depreciating 11% q-o-q, refining Ebit grew c8% sequentially.
RIL?s petchem segment clocked sequential Ebit growth of c33% due to healthy polymer spreads. However, we expect limited upside from current petchem margins. Rate of gas production slide has slowed and RIL guided for higher output from FY15 onward from existing fields. Retail business was flat sequentially while the shale gas business? Ebitda fell q-o-q.
Treasury income, though lower q-o-q, continues to support earnings, contributing c30% of PBT. RIL is still a net debt company at consolidated level, with net debt of $5 billion despite a cash balance of $14.5 billion.
– HSBC
