Reliance Industries
Current market price: Rs1,087
Q4FY2010 results
Result highlights
Reliance Industries Ltd (RIL)?s Q4FY2010 adjusted net income grew by 29.9% year on year (yoy) to Rs4,710 crore, which is significantly below our and the street?s estimates. This is due to a lower-than-anticipated margin in oil & gas segment (on account of a higher-than-expected depletion rate for KG D-6 block) and a lower-than-expected gross refining margin (GRM) of USD7.5 per barrel for the refining business. However, at operating level, the performance was much better and only marginally below the expectations. A large part of the swing in the net profit is contributed by a sudden jump in the depreciation charge to Rs3,392 crore in Q4FY2010 versus Rs2,795 crore in Q3FY2010.
The net sales grew by a phenomenal 120.7% yoy to Rs57,570 crore in the quarter mainly due to higher volumes on the back of commencement of its new Jamnagar refinery and the production of gas at Krishna-Godavari (KG) D-6 block. The revenues from the petrochemical business grew by 59% yoy while that from the refining segment increased by a strong 165% yoy. The revenues from the oil & gas segment surged by a sterling 487% yoy in the quarter.
The operating profit margin (OPM) shrunk by 601 basis points yoy to 15.9% in Q4FY2010 mainly on the back of a decline in the GRM to USD7.5 per barrel in Q4FY2010 from USD9.9 per barrel in Q4FY2009. The margin was also impacted by a decline in the profitability of the oil & gas business. The operating profit went up by 60.1% yoy to Rs9,136 crore in the quarter. In terms of segments:
The margin of the petrochemical division contracted by 326 basis points on a year-on-year (y-o-y) basis to 14.4%. The same on a sequential basis, however, improved by 45 basis points led by higher prices and slower rise in input cost.
The margin of the refining division plunged by a sharp 694 basis points on a y-o-y basis to 3.9% in the quarter due to a decline in the GRM to USD7.5 per barrel in Q4FY2010 from USD9.9 per barrel in Q4FY2009. The same (the margin) however increased by 100 basis points on a sequential basis on the back of improvement in the GRM from USD5.9 per barrel in Q3FY2010.
The margin of the exploration and production division contracted by a sharp 2,458 basis points on a y-o-y basis to 39.4% due to a higher depletion rate for KG D-6 block. The same on a sequential basis however shrunk by 242 basis points.
In spite of a 135% y-o-y increase in the depreciation charge (due to commencement of KG D-6 project and the merger of Reliance Petroleum with RIL), a 39.7% y-o-y decline in the other income and a higher effective income tax rate, the adjusted net income grew by 29.9% yoy to Rs4,710 crore in the quarter.
In terms of financial health, the company?s debt as on March 31, 2010 stood at Rs62,495 crore as compared to Rs73,904 crore in March 31, 2009. The cash and cash equivalents stood at Rs21,874 crore as on March 31, 2010. As a result, the net debt stood at Rs40,621 crore as on March 31, 2010.
RIL ramped up gas production in KG D-6 block to 60 million standard cubic meter per day (mmscmd) in Q4FY2010. The company has said that the design capacity of KG D-6 gas production facilities has achieved a flow rate of 80mmscmd.
In a thrust to its overseas expansion plans, RIL has closed the joint venture transaction with US-based Atlas Energy involving Marcellus Shale?s gas assets in the USA. RIL will acquire a 40% interest in around 300,000 acre (120,000 acre net to RIL) of undeveloped leasehold held by Atlas Energy in the Marcellus Shale leasehold. The acreage holds a net resource potential of around 13.3 trillion cubic feet (tcf; 5.3tcf net to RIL). The total acquisition cost for RIL stands at USD1.7 billion.
Currently, the stock is trading at 13xFY2012 earnings estimate and an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 7.2x. One can keep an eye on RIL for tgt of 1200+