Reliance quarter results

RIL reported 1QFY09 net profit of Rs41.1bn (up 13% yoy), 8% below our estimate, but in line with consensus. Most of the disappointment arose from GRMs, which were at US$15.7/bbl, compared to our estimate of US$17/bbl. Management maintained its guidance that oil/gas production from KG D6 would begin in 2HFY09. Management also said RPL would begin operations by December 08, but since each refinery unit would be commissioned step by step, commercial operations would begin later. We have assumed commercial operations start by April 09, whereas consensus is assuming 3-4 months of operations in FY09 (the main reason our FY09 EPS is 11% below consensus). Management said the availability of gas from KG D6 for internal consumption would depend on the government's gas utilisation policy, which puts refining lower in the utilisation pecking order. We also found management guidance on refining a little more cautious due to negative trends in US gasoline consumption. There were no additional "big bang" announcements.

Details
1QFY09 EBITDA was Rs61.2bn (up 8% yoy), but 8% below our expectations largely due to lower-than-anticipated refining profits. Forex loss at Rs2.8bn was also lower than our estimate of Rs4bn. Capex, at Rs72.2bn, was up 87% yoy and management said 80-85% was for E&P. Net debt was up from Rs289bn at end-March 08 to Rs319bn at end-June 08 and most of the increase was on account of higher working capital arising out of the US$40/bbl increase in crude price during the quarter.

E&P
The company expects oil/gas production from KG-D6 to begin in 2HFY09. The east-west pipeline has been completed and is now being tested.

Meanwhile, management said the issues over the tax holiday for gas production would be decided by the courts. Until then, they would continue to assume a tax holiday in their income tax filings.

Two discoveries have been made during the quarter.