‘RIL to outperform peers with refining margin of $9.5 in Q1’


New Delhi: Reliance Industries’ refinery at Jamnagar in Gujarat is likely to outperform peers to earn stronger margins of USD 9.5 in the current quarter, UBS Global Research has said.

In a research note, UBS said Singapore complex refining margins (GRMs) are holding firm at USD 8 per barrel in April-June quarter compared with USD 5.8 gross refining margin (GRM) a year ago. These are however lower than USD 8.5 a barrel of 4QFY15.

GRM, or the margin earned on turning every barrel of crude oil into fuel, is driven by strong gasoline margins, better demand and tightened supply due to refinery maintenance shutdowns.

“We expect RIL to outperform peers with stronger GRMs of USD 9.5 per barrel in 1Q (vs USD 8.7 of 1QFY15) benefiting from its superior product mix, yield improvements and lower crude, energy costs.

“If demand recovery sustains, we see upside to our RIL’s FY16 GRM of USD 8.7/bbl,” it said.
Jamnagar refinery’s superior complexity refinery with Nelson index of 12.7 and near 110 percent utilisation differentiates it from the US, EU and Asian refiners with complexity in range of 6-11 and operating at utilisation levels of 80-87 percent.

“Its ability to process wide crude varieties and switch to higher value product yields like gasoline, diesel, kerosene has driven its consistent GRMs outperformance vs peers,” UBS said.

RIL’s petcoke gasifier project is likely to be operational by early 2016 and will enhance its cost competitiveness by lowering energy cost and improve GRMs from USD 8.6 per barrel in FY15 to USD 9.3 a barrel in FY17.

This will improve its average GRMs of USD 8.3 per barrel over FY10-15 to USD 8.9 over FY16-19.

UBS said RIL’s USD 10 billion petchem capex by 2016 will drive 12 percent volume CAGR and provide a good proxy to India’s GDP recovery with better margin outlook.

It will also yield higher GRMs of near USD 1 per barrel due to gasifer starting in 2016 will offset concerns on KG-D6 production and shale profits due to low oil prices.

“We expect EBITDA growth trajectory to change with 16 percent CAGR over FY15-18 (vs 1 percent decline over FY11-15),” it said.

Telecom capex is an overhang, but likely positive feedback post 4G launch in second half of 2015 and good subscriber addition could help offset the investors’ extreme scepticism towards telecom, UBS said.

“We expect RIL’s core petrochemical, refining and domestic exploration and production (E&P) businesses to improve over the next two years,” the report said.


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