RIL to see upside upon $16 bn project completion

Reliance Industries, which reported its first decline in quarterly net profit in over two years, is likely to see upside when its USD 16 billion expansion projects are completed and telecom venture is rolled out, analysts said.

New Delhi: Reliance Industries, which reported its first decline in quarterly net profit in over two years, is likely to see upside when its USD 16 billion expansion projects are completed and telecom venture is rolled out, analysts said.

RIL's standalone net profit in October-December fell 7.7 percent to Rs 5,085 crore, the first drop in nine quarters. Consolidated net profit dropped 4.5 percent to Rs 5,256 crore. Higher other income helped but inventory losses on unprecedented drop in global oil prices did the damage.

"Most of the focus this year will likely be on telecom launch. While telecom will likely be a key driver of the stock in 2015, we still believe petchem/refining growth will put an end to RIL's underperformance," Nomura said in a report adding earnings should appreciate sharply as expansion projects are completed in 2016.

Macquarie said RIL's new downstream projects, where USD 10 billion out of planned capex of USD 14 billion has already been spent, holds the key to its performance. "We expect RIL's profits to rise 60 percent by FY18, led by these."

Its key refining and petchem projects remain on track for completion by second half of 2015-16, Goldman Sachs said.

Citi said the unprecedented oil price fall in third quarter did not leave RIL unscathed.

"Inventory impacts in refining and weak buying sentiment in petchem led to weaker realised spreads, despite product prices lagging crude. Stable oil prices in 4Q could drive a bounce-back in operating performance," it said.

Bernstein Research said it continues to believe in long term upside from gas, downstream expansion and telecoms which will benefit from stronger Indian economic growth.

"We continue to see longer term upside through offshore gas (on implementation of a premium for deep water fields), petrochemical expansion and completion of the gasification plant which will enhance refining margins," it said.

ICICI Securities said the company management expects upsides to oil prices in second half of 2015, driven by spurt in demand and decline in US production growth.

It saw eastern offshore KG-D6 gas output rising to 13 million standard cubic meters per day in 2016-17 from 11.3 mmscmd in the third quarter and peak gas production of 40 mmscmd by FY19.

"RIL's stock has also been under pressure due to the delayed rollout of its 4G business ... We continue to believe that early rollout by RIL will focus on Wi-Fi dongle and residential broadband," HSBC said.

UBS said RIL's core petrochemical, refining and domestic E&P businesses to improve over the next two years. "Given the gas price hike, government focus to encourage domestic production and problems with KG-D6 should be resolved shortly and gas production visibility should improve."

"With USD 13 billion capex on track, USD 8.5 billion of petrochemical capex operational in phases, refinery cost advantages increasing with pet-coke gasifier operational by 2016 and enabling steady USD 8-plus gross refining margin and shale gas and retail also contributing to EBITDA, we forecast an 16 per cent EBITDA CAGR over FY14-18 (3 per cent over FY10-14)," UBS said.

Favourable regulatory scenario for domestic (oil and gas) exploration and production and a quick and profitable ramp-up in telecoms could unlock latent value, it said.

Credit Suisse said RIL's E&P revenues fell less than we forecast, largely as RIL is accounting KG D6 gas sales at the higher, revised gas price of USD 5.61 per million British thermal unit.

Amounts that are being withheld by the government (USD 1.41 per mmBtu) are being accounted as 'deposits' by RIL, it said.

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