Broadly in-line; Maintain Buy
* Results beat marginally our estimates with EBITDA at Rs113bn (against our estimates of Rs111bn) due to higher than expected GRM. Also PAT came in at Rs81.5bn vs our estimate of Rs79.5bn. Due to forex gain interest expenses came down qoq. While tax out go was lower due to benefit of IndAS implementation which is expected to last for next 5yrs. For the FY18, Mgmt. will give exact tax guidance in next quarter
* Commissioning of petcoke project is scheduled to start from July with a plan to start 2 gasifiers every month (total 10 gasifiers). Full benefit of petcoke/ROGC should start from Q4/Q3FY18 onwards. Mgmt. expects 60% of the $3bn incremental benefit to flow in FY18
* P&L reporting for Jio is expected to start in Q2FY18. Mgmt. has already spent most of the budgeted capex of $18.5bn in Refining and Petchem businesses. FY18 capex budget has been capped at $2.5bn excluding Jio
* Going forward, Jio’s target to get decent paying subscriber base would keep hyper competitive scenario alive for the industry in medium term. Also, Jio’s P&L (expected from Q2) would dictate momentum in RIL’s stock price. Maintain BUY with a target of Rs.1,517/share
* Other details
KG D6 gas production declined marginally qoq to 7.4mmscmd, while shale gas production was up by 4% qoq to 39.1bcfe. Refining throughput declined by 0.3MMT qoq to 17.5mnt. Petchem production grew by 4.4% qoq to 3.5mnt. GRM came in higher at $11.5/bbl against our estimates of $10.9/bbl. Company has commissioned Ethane project and 2nd phase of PX. Tax outgo was lower due to benefit of IndAS implementation which is expected to last for next 5 years. Mgmt. will give exact tax guidance in the next quarter. Refining Opex increased by $0.14/bbl to $3/bbl.
* Management view on core business margins:
Management expects GRMs to improve from hereon as there would be limited net refining capacity addition of 0.8Mbpd against an incremental demand growth of 1.3Mbpd in 2017. While in Petchem, demand is expected to rise by 4% compared to a 3% increase in supply. This should help in supporting higher rates and product margin.
Outlook and valuation:
The capex intensity of RIL is set to plummet from Q1FY18 onwards. However, full benefit of the core capex incurred is likely to flow from FY19 onwards, thereby, boosting cash flow generation. Hence, we don’t foresee debt levels rising from hereon. Overall, results were broadly in-line with our expectations. The recent run-up seems to have already factored in a favorable set of numbers. Going forward, Jio’s target to get decent paying subscriber base would keep hyper competitive scenario alive for the industry in medium term. Also, Jio’s P&L (expected from Q2) would dictate momentum in RIL’s stock price. Maintain BUY with a target of Rs.1,517/share. The stock is currently trading at a FY19E PE of 11.5x and P/BV of 1.4x.
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