Buy Reliance Industries - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, Reliance Industries (RIL) reported 42.4% yoy growth in its top line. However, EBITDA and PAT declined by 23.7% yoy and 13.6% yoy, respectively, due to a decline in KG D6 gas production and lower Gross refining margins (GRMs).

Robust 3QFY2012 performance: RIL's net sales increased by 42.4% yoy to Rs.85,135cr, above our estimate of Rs.78,364cr. However, RIL's EBITDA decreased by 23.7% yoy to Rs.7,285cr on account of lower profits from all the three main segments. GRMs stood at US$6.8/bbl in 3QFY2012 compared to US$9.0 in 3QFY2011 and US$9.1/bbl in 2QFY2012. Production from KG-D6 stood at 41mmscmd in 3QFY2012 compared to 45mmscmd in 2QFY2012. Other income increased by 131.7% yoy to Rs.1,717cr, which resulted in net profit decreasing by only 13.6% yoy to Rs.4,440cr, slightly below our estimate of Rs.4,519cr.

RIL turns net debt-free; announces buyback details: During 3QFY2012, RIL turned into a net debt-free company, as its debt stood at Rs.74,503cr and cash stood at Rs.74,539cr, as on December 31, 2011. RIL announced share buyback program of 12cr shares (Rs.10,440cr) through open market purchases at a buyback price not exceeding Rs.870/share.

Outlook and valuation: RIL's refining and petrochemical segments' profits declined during 3QFY2012. Going forward, although there are some concerns on the KG basin gas output, we believe RIL along with BP will optimize producing blocks in KG D6. Moreover, the stock is currently trading at a PE of 12.0x FY2012E and 11.2x FY2013E, compared to its past five years' trading average of 17.7x forward PE. Thus, we maintain our Buy recommendation on RIL with an SOTP target price of Rs.923.

Source : Equity Bulls

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