RIL reported pre-exceptional 4Q FY09 net profit of Rs39B (flat y/y), higher than our and consensus estimates (Rs36.5B). Better-than-expected petchem margin and forex gains were key drivers for the higher earnings. Refining margins were marginally higher than expected at US$9.9/bbl.
• Projects up and running, ramp-up to drive earnings over FY10-11: RPL commenced commercial production in Mar-09 and >90% utilization is expected by Sep-09. KGD6 gas production commenced in Apr-09 with current production of ~10mmsmcd, to ramp up to 40mmsmcd by Sep-08, and 80mmsmcd by Mar-10. Refining volumes and gas revenues should drive a 30% earnings CAGR over FY09-11E.
• Petchem surprises; RIL expects pain to come in FY11: Restocking, demand, and supply discipline led to a rebound in petrochem margins in 4Q. RIL believes a petrochem downturn could be pushed to FY11 as 1) stock levels are still 30-40% below normal (further restocking possible), and 2) the full impact of new capacity will be felt only in 2010.
• Refining – waiting for supply discipline: RIL assesses around 10mbpd of private refining capacity were at loss/break-even levels. It believes that a significant number of these refineries will shut down, which would help balance the global refining industry. Low opex (c. US$2/bbl v/s US$5/bbl for peers) will help RIL weather the downturn, in the company’s view.
• Prudent strategy: Slowing on capex: RIL plans capex of US$4-4.5B on E&P development, exploration, and RPL completion. Capex on new projects will be deferred and RIL will hold cash through the downturn. Management likened this to a year of consolidation for RIL.
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