Ril Gains Traction, Refining Margins Increase

Reliance Industries (RILs) move to acquire Luxembourg-based petrochemicals firm LloyndellBasell for $14.5 billion did not materialise

. But, its recent announcement of forming a joint venture with Atlas Energy to develop shale gas acreage (RILs net share at 5.3 trillion cubic feet) involving an investment of almost $5 billion over ten years indicates the company continues to scout for growth opportunities globally.

With an estimated cash generation of $14 billion over two years and cash equivalents of over Rs 20,000 crore, analysts believe RIL will continue to look for sizeable investment opportunities going ahead. Whats equally exciting is that its fortunes are expected to improve on the back of the rise in margins in the refining business, and higher gas and refining volumes.

The combined gains of improvement in margins and output in the refining business, steady petrochemicals outlook and higher gas volumes are seen driving RILs performance in the March 2010 quarter and 2010-11. On April 12, Standard & Poors (S&Ps) revised its outlook on RIL to stable from negative.

We revised the outlook to reflect our expectation of an improvement in RILs financial metrics because we believe the consistent improvement in its operating performance over the past year is sustainable, its analyst noted. While S&Ps expects RILs earnings before interest, depreciation, taxation and amortisation (EBIDTA) to have increased 20 per cent in 2009-10, it expects the company to further improve its operating performance by maintaining the existing level of gas production and a potential improvement in refining margins.

For the March 2010 quarter, analysts expect RILs net profit to rise by about 40 per cent to over Rs 5,400 crore. As per mean analysts estimates (on Bloomberg), RILs earnings per share (EPS) is seen rising 41.8 per cent year-on-year to Rs 72.9 in 2010-11. They have put a 12-month price target price of Rs 1,127.30 for RIL, which closed at Rs 1,083.30 on Friday. Among crucial events to watch for going forward are the outcome of the pending gas dispute with RNRL and NTPC, new discoveries in the E&P business and how RIL deploys its cash reserves.

by: Rajiv Patel

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