BNP Paribas downgrades RIL to reduce, target price Rs 1450
RIL’s shares have gained 43% YTD, compared with the BSE Sensex at 15%. During this time, the gas sale ban on RIL has been lifted and the company has had favorable pricing of USD4.20/mmbtu to sell the gas.
By ET Bureau |
MUMBAI: RIL���s shares have gained 43% YTD, compared with the BSE Sensex at 15%. During this time, the gas sale ban on RIL has been lifted and the company has had favorable pricing of USD4.20/mmbtu to sell the gas. In addition, the company successfully started gas production and commenced sales from Reliance Petroleum Ltd (RPL).
The brokerage believes all the above positives are priced in the shares at current levels. The current price factors in GRMs of 13.0/bbl and Petrochem EBIT margins of 13.3%, which are significantly higher than our expectations, and also do not tie in with the global outlook for the refining and Petrochem businesses.
���We are downgrading RIL to a REDUCE rating, primarily on the back of recent rally which we believe fully prices any near-term catalyst. Our TP goes up to INR1450 per share from INR1322 per share accounting for USD4.20/mmbtu for the entire production and change in house crude and currency estimates,��� said the report of BNP Paribas.
���We estimate GRMs of USD9.5/bbl and Petrochem EBIT margin of 10.3% for FY10. We value the refining and Petrochem business at 6x EV/EBITDA, which is at the high-end of trough multiples for refiners and Petrochem companies as seen in the previous down cycles. We do not assign any option value to any block, wherein production/reserve news flow is not expected in the next 18-24 months,��� the report concluded.
RIL reported its 4QFY09 results in-line with the brokerage���s estimates with PAT coming in at INR 38.74 billion versus the estimate of INR 38.53 billion. RIL���s GRMs came in at USD9.9/bbl versus the expectation of USD11/bbl. ���In our view, the GRMs were disappointing considering there was little crude volatility for 4QFY09 and lack of meaningful inventory losses as seen in 3QFY09,��� the brokerage said.
However, the weakness in refining was more than offset by the Petrochem business, which saw 4% q-q increase in EBIT while the EBIT margins jumped from 13.1% for 3Q to 17.7% for 4QFY09 led by a combination of price increases and inventory valuation gains. Overall, the Petrochem business offset the weakness in refining.
The brokerage believes all the above positives are priced in the shares at current levels. The current price factors in GRMs of 13.0/bbl and Petrochem EBIT margins of 13.3%, which are significantly higher than our expectations, and also do not tie in with the global outlook for the refining and Petrochem businesses.
���We are downgrading RIL to a REDUCE rating, primarily on the back of recent rally which we believe fully prices any near-term catalyst. Our TP goes up to INR1450 per share from INR1322 per share accounting for USD4.20/mmbtu for the entire production and change in house crude and currency estimates,��� said the report of BNP Paribas.
���We estimate GRMs of USD9.5/bbl and Petrochem EBIT margin of 10.3% for FY10. We value the refining and Petrochem business at 6x EV/EBITDA, which is at the high-end of trough multiples for refiners and Petrochem companies as seen in the previous down cycles. We do not assign any option value to any block, wherein production/reserve news flow is not expected in the next 18-24 months,��� the report concluded.
RIL reported its 4QFY09 results in-line with the brokerage���s estimates with PAT coming in at INR 38.74 billion versus the estimate of INR 38.53 billion. RIL���s GRMs came in at USD9.9/bbl versus the expectation of USD11/bbl. ���In our view, the GRMs were disappointing considering there was little crude volatility for 4QFY09 and lack of meaningful inventory losses as seen in 3QFY09,��� the brokerage said.
However, the weakness in refining was more than offset by the Petrochem business, which saw 4% q-q increase in EBIT while the EBIT margins jumped from 13.1% for 3Q to 17.7% for 4QFY09 led by a combination of price increases and inventory valuation gains. Overall, the Petrochem business offset the weakness in refining.
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