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MOSL: RELIANCE INDUSTRIES (Buy)-Strong core performance to continue-Expect USD11.5/bbl of GRM in FY19-20

Reliance Industries: Strong core performance to continue; Expect USD11.5/bbl of GRM in FY19-20

(RIL IN, Mkt Cap USD82.9b, CMP INR939, TP INR1111, 18% Upside, Buy)

 

• As we had pointed out in our earlier report, Latin Touch, November 2017, structurally poor utilization in Latin America and Africa would keep benchmark gross refining margins (GRMs) strong in the next 2-3 years. RIL should clock GRMs of USD11-12/bbl in FY19-20.
• Petchem margins have also been strong. Though PE prices have been ~USD828/mt in FY18YTD, 5% below the five-year average, PP and PVC prices are 6-25% higher. We expect RIL’s petchem EBITDA to increase by 67% during FY17-20.
• We expect strong free cash flow generation of INR678b during FY18-20 on consolidated basis.

 Refining margins to remain strong

• Despite global capacity additions, we expect GRMs to stay strong, as 12% of the global capacity in Latin America and Africa is expected to remain poorly utilized.
• We expect RIL to clock GRMs of ~USD11.5/bbl in FY19 and FY20. We expect average refining EBITDA of INR286b over FY17-20.

 Petchem margins to stay strong, too

• Due to delay in US/China expansions, petchem margins are likely to stay strong. Integrated PE, PP and PVC delta is (5%)/6%/25% above 5-year average.
• Petchem’s contribution to RIL’s EBITDA is expected to grow from 37% in FY17 to 50% in FY20. Access to varied feedstock also gives it the capability to optimize the best of the available scenarios.