MOSL: RELIANCE INDUSTRIES (Upgrade to Buy)-Standalone EBITDA in line-RJio delivers +ve EBIT from 1st quarter itself

​RELIANCE INDUSTRIES: Standalone EBITDA in line; RJio delivers +ve EBIT from 1st quarter itself

(RIL IN, Mkt Cap USD85.4b, CMP INR877, TP INR1005, 15% Upside, Upgrade to Buy)

• Reliance Industries’ (RIL) 2QFY18 standalone EBITDA rose 23% YoY (+12% QoQ) to INR129.8b, largely in line with our estimate of INR126b. PAT rose 7% YoY (+1% QoQ) to INR82.6b, below our estimate of INR88.2b, due to higher interest expense of INR13b (est. of INR9.4b) and a higher tax rate at 27.9% v/s 22% in 1QFY18 and 24% in 2QFY17. Interest expense was higher due to forex loss of INR4.5b. GRM of USD12/bbl was below our estimate of USD12.6, while refining throughput of 18.1mmt was ahead of our estimate of 17.5mmt.
  
• GRM of USD12/bbl: While Singapore complex GRM increased from USD6.4/bbl in 1QFY18 to USD8.3/bbl, RIL’s GRM increased only from USD11.9/bbl to USD12/bbl due to lower light-heavy and Brent-Dubai differentials. There could also be some hedging losses as cracks moved up sharply in the quarter.
  
• Petchem drives core performance: Refining EBIT stood at INR65.3b (+11% YoY, +2% QoQ), led by GRM of USD12/bbl (+19% YoY, +1% QoQ) and throughput of 18.1mmt (+1% YoY, +3% QoQ). Petchem EBIT rose 42% YoY (+23% QoQ) to INR49b, led by a favorable margin and strong volume growth. EBIT margin of 18.3% came in ahead of 16.3% in 2QFY17, primarily due to the strengthening of intermediates and polyester chain deltas.
  
• ROGC commissioned: ROGC has been commissioned, while other downstream units are being commissioned and would take 60-90 days for full ramp-up. Petcoke gasifier is expected to be commissioned by early 2018.
  
• Domestic E&P continues to shrink: E&P EBIT stood at -INR960m v/s INR240m in 2QFY17 and -INR2.3b in 1QFY18. KG-D6 gas production declined to 5.4mmscmd (-28.4% YoY, -13% QoQ). Shale gas production was down to 33.5bcfe (-19% YoY,-3.5% QoQ) due to natural decline and temporary shut-in of wells.