1 Stock Data Sector Diversified Face Value (Rs.) 10.00 52 wk. High/Low (Rs.) 2490.00/961.00 Volume (2 wk. Avg.) 872000 BSE Code 500325 Market Cap (Rs.mn.) 3555634.50 Financials (Rs. in mn.) FY09 FY10 FY11E FY12E Net Sales 1418470 1924610 2213301 2545296 EBIDTA 253730 330410 375531 430569 PAT 153090 162360 182400 206911 EPS 99.35 49.65 55.78 63.28 P/E 10.95 21.90 19.49 17.18 Reliance Industries Ltd BUY F I R S T C A L L R E S E A R C H SYNOPSIS Reliance Industries Limited (RIL) is India’s largest private sector company on all major financial parameters. KG D6 completed 365 days of 100% uptime and zero-incident production. Gas production from KG D6 has ramped up to 60 MMSCMD in a short span of 9 months from commencement. All 18 wells of KG D6 have been put for production; current production of about 60 MMSCMD is taken from 16 wells. The design capacity of the KG D6 deepwater gas production facilities were assessed and achieved a flow rate of 80 MMSCM. The company announced closing of Marcellus shale joint venture with Atlas Energy. Reliance provides growth capital to Deccan 360 as a strategic investor. The Board of Directors of the Company has recommended a dividend of Rs. 7.00 (Rupees seven only) per fully paid-up equity share of Rs. 10/- each. RIL has cash and cash equivalents of Rs. 218740.00mn (US$ 4.9 billion). The company’s top line and bottom line are expected to grow at a CAGR of 22% and 11% over FY08 to FY11E. 1 Year Comparative Graph Reliance Ind BSE SENSEX V.S.R. Sastry Equity Research Desk [email protected]Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer [email protected]C.M.P: Target Price: Rs.1087.35 Rs.1300.00 Share Holding Pattern April 24, 2010
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Stock Data
Sector Diversified
Face Value (Rs.) 10.00
52 wk. High/Low (Rs.) 2490.00/961.00
Volume (2 wk. Avg.) 872000
BSE Code 500325
Market Cap (Rs.mn.) 3555634.50
Financials (Rs. in mn.) FY09 FY10 FY11E FY12E
Net Sales 1418470 1924610 2213301 2545296
EBIDTA 253730 330410 375531 430569
PAT 153090 162360 182400 206911
EPS 99.35 49.65 55.78 63.28
P/E 10.95 21.90 19.49 17.18
Reliance Industries Ltd
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SYNOPSIS Reliance Industries Limited (RIL) is India’s largest private sector company on all major financial parameters.
KG D6 completed 365 days of 100% uptime and zero-incident production. Gas production from KG D6 has ramped up to 60 MMSCMD in a short span of 9 months from commencement. All 18 wells of KG D6 have been put for production; current production of about 60 MMSCMD is taken from 16 wells. The design capacity of the KG D6 deepwater gas production facilities were assessed and achieved a flow rate of 80 MMSCM.
The company announced closing of Marcellus shale joint venture with Atlas Energy.
Reliance provides growth capital to Deccan 360 as a strategic investor.
The Board of Directors of the Company has recommended a dividend of Rs. 7.00 (Rupees seven only) per fully paid-up equity share of Rs. 10/- each.
RIL has cash and cash equivalents of Rs. 218740.00mn (US$ 4.9 billion).
The company’s top line and bottom line are expected to grow at a CAGR of 22% and 11% over FY08 to FY11E.
GAIL India limited 421.55 534726.60 22.54 18.70 3.62 70.00
Cairn India limited 297.90 565108.60 - - 1.77 0.00 * As on 24/4/2010
Investment Highlights
Results Updates (Q4 FY10) (Standalone)
For the fourth quarter, the top line of the company increased 103%YoY and stood at Rs.575700.00mn against Rs.283620.00mn of the same period of the last year. The bottom line of the company for the quarter stood at Rs.47100.00mn from Rs.35460.00mn of the corresponding period of the previous year i.e. an increase of 33%YoY.
EPS of the company for the quarter stood at Rs.14.40 for equity share of Rs.10.00 each.
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Expenditure for the quarter stood at Rs.484340.00mn, which is around 108% higher than the corresponding period of the previous year. Raw material cost of the company for the quarter accounts for 75% of the sales of the company and stood at Rs.430800.00mn. Other Expenditure stood at Rs.39020.00mn from Rs.21430.00mn. and accounts for 7% of the revenue of the company for the quarter i.e., an increase of 82%YoY.
OPM and NPM for the quarter stood at 17% and 8% respectively from 21% and 13% respectively of the same period of the last year.
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• Segment-Wise revenue for the Quarter
Segment Revenue (Rs. million)
Petrochemicals 154480.00 Refining 512500.00 Oil and Gas 43180.00 Others 1280.00
Gross Turnover (Turnover and Inter Divisional Transfers) 711440.00
Less: Inter Segment Transfers (108770.00) Turnover 602670.00
Less: Excise Duty Recovered on Sales (26970.00) Net Turnover 575700.00
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FY10 Performance in line with expectation
The Company’s Top line has increased 36% to Rs.1924610.00mn from Rs.1418470.00mn of FY09. Bottom line for the year increased 4% to Rs.162360.00mn. from Rs.156370.00mn of FY09. These numbers are in line with our expectation. Earnings per share of the company for the year stood at Rs.49.65 per share. Expenditure of the company for the year stood at Rs.1618800.00mn, which is around 37% higher than FY09. Consumption of raw materials and purchase of traded goods increased by 44% to Rs. 1509150.00mn (US$ 33.6 billion) mainly on account of higher crude oil processed in the SEZ refinery. Volumes accounted for 51% increase in value of consumption of raw materials which was partially offset by 7% reduction in prices, primarily of crude, naphtha and propane. Staff cost was Rs. 23500.00mn (US$ 523 million) for the year as against Rs. 23980mn reflecting continued productivity gains. Other expenditure increased by 7% from Rs. 117010.00mn to Rs. 125630.00mn (US$ 2.8 billion). Increase in royalty on gas production, sales tax and selling expenses on additional volumes was partly offset by exchange rate gain.
Interest increased 14%YoY to Rs.19970.00mn. Depreciation (including Depletion and Amortization) was higher by 102% at Rs. 104970mn (US$ 2.3 billion) against Rs. 51950.00mn in the previous year primarily on account of higher depletion charge in Oil & Gas and increased depreciation in the Refining business segment. Outstanding debt as on 31st March 2010 was Rs. 624950.00mn (US$ 13.9 billion) compared to Rs. 739040.00mn as on 31st March 2009. RIL has cash and cash equivalents of Rs. 218740.00mn (US$ 4.9 billion). These are in fixed deposits, certificate of deposits with banks and Government
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securities and bonds. RIL’s net debt is equivalent to 1.2 times PBDIT for the year ended 31st March 2010. The net capital expenditure towards projects for the year ended 31st March 2010 was Rs. 93310.00mn (US$ 2.1 billion). RIL has domestic credit ratings of AAA from CRISIL and FITCH. RIL has investment grade ratings for its international debt from Moody’s and S&P as Baa2 and BBB respectively. S&P has recently revised its outlook on RIL from “negative” to “stable”.
• Segment-Wise revenue for the FY 2010
Segment Revenue (Rs. million)
Petrochemicals 552510.00
Refining 1632490.00
Oil and Gas 126490.00
Others 3980.00
Gross Turnover (Turnover and Inter Divisional Transfers) 2315470.00
Less: Inter Segment Transfers 311470.00
Turnover 2004000.00
Less: Excise Duty Recovered on Sales 79390.00
Net Turnover 1924610.00
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Domestic Operations KG D6 completed 365 days of 100% uptime and zero-incident production. Gas production from KG D6 has ramped up to 60 MMSCMD in a short span of 9 months from commencement. All 18 wells of KG D6 have been put for production; current production of about 60 MMSCMD is taken from 16 wells. The design capacity of the KG D6 deepwater gas production facilities were assessed and achieved a flow rate of 80 MMSCM. GSPAs have been executed with about 50 customers in line with the Government of India’s gas utilization policy for over 69 MMSCMD in the fertilizers, power, city gas distribution, steel, LPG, refinery and petrochemical sectors. During the year, production from KG D6 was 507,700 tonnes of crude oil and 14,397 MMSCM of natural gas. Production from Panna-Mukta was 1,965 MMSCM of natural gas and 1.8 million tonnes of crude oil, a growth of 18% and 9% respectively as compared to the previous year. Increase in production at Panna-Mukta was due to a lower base effect following a shutdown in PPA process platform in the previous year. Production from Tapti was 3,102 MMSCM of natural gas and 187 thousand tonnes of condensate, a decrease of 26% and 31% respectively over the previous year. The decrease in production was due to natural reserves decline. 3 infill wells (2 in South Tapti and 1 in Mid Tapti) were drilled following which gas production has increased by 9 MMSCMD. During the year, development of Panna-K (PK) area was completed. The current production from PK wells is about 5,000 barrels per day and about 0.28 MMSCMD of natural gas. Development Plan of Panna (PL) area has been approved by the DGH. The project is expected to be completed in 2010 with first oil anticipated by December 2010. Initial anticipated total production from PL is about 4,000 barrels per day. During the year, following four discoveries were notified to Directorate General of Hydrocarbons (DGH) –
� Dhirubhai-43 in Well AA1 in CB10 block
� Dhirubhai-44 in Well R1 in KGVD3 block
� Dhirubhai-45 in Well BF1 in CB10 block
� Dhirubhai-46 in Well AH1 in CB10 block Subsequent to series of new discoveries in the southern and deeper areas of the KG D6 block, an optimized development plan has been submitted to DGH in December 2009.
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International Operations The International business comprises of 13 blocks with acreage of over 93,526 square kilometers – 2 in Peru, 3 in Yemen (1 producing and 2 exploratory), 2 each in Oman, Northern part of Iraq i.e. Kurdistan Region and Colombia, 1 each in East Timor and Australia. Average production for the quarter ended 31st March 2010 at the Yemen Block 9 was about 4,600 barrels per day. Reliance has farmed-out 30% of its Participating Interest (PI) in Oman-Block 18 and 25% in Oman- Block 41 to Oman Oil Company Exploration and Production. Their Parliament is yet to ratify the approval accorded by the Ministry. Reliance has farmed-out 20% of its Participating Interest (PI) in Colombia Borjo North and Borjo South to Ecopetrol. The resolution has been passed by Association of National Hydrocarbon (ANH) however; the amendments to the contract are yet to be signed. Reliance has relinquished Peru Block 141 due to low prospectivity. RIL through its Subsidiary, Reliance Marcellus LLC, has executed definitive agreements to enter into a joint venture with United States based Atlas Energy, Inc., of Pittsburgh, Pennsylvania under which Reliance will acquire a 40% interest in Atlas’s core Marcellus Shale acreage position. Reliance becomes a partner in approximately 300,000 net acres of undeveloped leasehold in the core area of the Marcellus Shale in southwestern Pennsylvania for an acquisition cost of US$ 339 million and an additional US$ 1.36 billion capital costs under a carry arrangement for 75% of Atlas’s capital costs over an anticipated seven and a half year development program, Low operating costs and proximity to U.S. northeast gas markets combine to make the Marcellus one of the most economically attractive unconventional natural gas resource plays. The acreage will support the drilling of over 3,000 wells with a net resource potential of approximately 13.3 TCFe (5.3 TCFe net to Reliance). While Atlas will serve as the development operator, Reliance is expected to begin acting as development operator in certain regions in the coming years as part of the joint venture.
Corporate Highlights
Reliance Industries Limited (RIL) through its subsidiary, Reliance Marcellus LLC, has executed definitive agreements to enter into a joint venture with United States based Atlas Energy, Inc., of Pittsburgh, Pennsylvania under which Reliance will acquire a 40% interest in Atlas's core Marcellus Shale acreage position.
The Scheme of Amalgamation of Reliance Petroleum Limited (RPL) with Reliance
Industries Limited (RIL) has been sanctioned by the Hon’ble High Court of Judicature at Bombay and the Hon’ble High Court of Gujarat at Ahmedabad. The Scheme has become effective from 11th September 2009 with the appointed date being 1st April 2008.
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The Company issued and allotted 162,67,93,078 bonus shares in the ratio of one equity share for every one equity share held in the Company.
During the year, the Petroleum Trust sold 8.88crore equity shares (adjusted for
bonus issue) of the Company and realized about Rs. 9,334crore. Reliance Industrial Investments and Holdings Limited, a wholly owned subsidiary of RIL, is beneficiary of the Trust. The Profit from total sale of Treasury shares is reflected in the consolidated results of the Company.
On 2nd April 2009, gas production commenced from KG D6 and has completed
a year of zero incident production with 100% uptime.
RIL surrendered the EOU status for its refinery with effect from 16th April 2009 to cater to increasing demand of petroleum products in the Country.
A T Kearney lists RIL as one of the Top 25 Global Champions for 2009 which
managed to outperform the competition in the midst of global financial meltdown.
Boston Consulting Group (BCG) ranks RIL as the 5th most sustainable value
creator globally.
Following companies have become subsidiaries of RIL during the year
� Central Park Enterprises DMCC
� Reliance International BV
� Reliance Corporate Centre Limited
� Reliance Convention and Exhibition Centre Limited
� Reliance Corporate Services Private Limited Following companies have been de-subsidiarized during the year
� Reliance Cyprus Limited
� Reliance International Exploration and Production Inc.
• Dividend The Board of Directors of the Company has recommended a dividend of Rs. 7.00 (Rupees seven only) per fully paid-up equity share of Rs. 10/- each.
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• Reliance Industries announces closing of Marcellus shale joint venture with
Atlas Energy The company announced the closing of its recently announced Marcellus Shale joint venture transaction with United States based Atlas Energy, Inc. (NASDAQ: ATLS), of Pittsburgh, Pennsylvania. Under the terms of the transaction, Reliance will acquire a 40% interest in Atlas' core Marcellus Shale acreage position. Reliance paid Atlas approximately $339 million in cash at closing and will pay an additional $1.36 billion under a carry arrangement by funding 75% of Atlas’ capital costs over the development program. Reliance and Atlas have agreed to acquire, in a series of transactions, 42,344 highly prospective Marcellus Shale acres in southwestern Pennsylvania for an average purchase price of $4,532 per acre. Substantially all of the acreage to be acquired is held by production and is either contiguous with the joint venture's existing acreage or in concentrated blocks of acreage. As a result of these transactions, the Atlas/Reliance joint venture will now control approximately 343,000 Marcellus Shale acres, of which approximately 137,000 acres are net to Reliance.
• Reliance provides growth capital to Deccan 360 as a strategic investor The company announced their investment in Deccan 360, India’s new delivery and distribution network, an initiative which will provide a remarkable boost in transforming the logistics spectrum in India. This investment will help Deccan 360 to increase the air and surface network coverage across the country. Deccan 360 will introduce world class services & systems to India’s express end-to-end supply chain logistics space in both business-to-business and retail sector.
• Common Wealth Games 2010 to be ‘solar powered’ by Reliance The solar energy initiative of Reliance Industries Ltd. (RIL), RIL Solar Group, has successfully implemented and commissioned India’s first 1MW solar plant on the roof of the Thyagaraj Stadium in New Delhi. The Thyagaraj Stadium, developed by the Government of Delhi, is planned to be a model green stadium and will host Netball in the upcoming Common Wealth Games. RIL Solar Group has also implemented power plants in the R K Khanna Tennis Complex as also solar LED street lights and garden lights in the Commonwealth Games Village. With these, RIL Solar Group has installed 100% of the solar PV power generating equipment for the Commonwealth Games 2010. The entire solar initiative is one of the major initiatives to compensate for CO2 emissions to be released through the game.
• Reliance Industries and IMG Worldwide forge alliance (IMG Reliance) Reliance Industries Limited (RIL) and IMG, the world’s leading sports marketing and Management Company, announced an equal joint venture to develop market and manage sports and entertainment in India. The venture, IMG Reliance Pvt. Ltd., will have parallel complementary strategies: to provide and operate world
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class infrastructure and coaching facilities in the country to unlock India’s sporting potential and; to create and operate major sports and entertainment assets in the country.
• Allotment of Equity Shares The Company has allotted 43,533 equity shares of Rs. 10/- each, on March 31, 2010 to its employees, pursuant to the Employees Stock Option Scheme. Consequently, the equity shares capital of the Company as on March 31, 2010 shall stand increased to Rs. 3270.37crore comprising 327,03,74,360 equity shares of Rs. 10 each.
Company Profile The Reliance Group, founded by Dhirubhai H. Ambani, is India's largest private sector enterprise, with businesses in the energy and materials value chain. Group's annual revenues are in excess of $ 30 billion. The flagship company, Reliance Industries Limited, is a Fortune Global 500 company and is the largest private sector company in India. Dhirubhai Ambani founded Reliance as a textile company and led its evolution as a global leader in the materials and energy value chain businesses. It was in 1957 when he returned to India after a stint with A.Besse& Co., Aden he started yarn trading business from a small 500 sq.ft. Office in Masjid Bunder, Mumbai.he set up his brand new mill in Naroda, Gujarat. In 1996 Reliance went on to become the biggest textile brand ‘Only Vimal’. In 1977 the Reliance Textile Industries came with an IPO which was oversubscribed seven times. Reliance enjoys global leadership in its businesses, being the largest polyester yarn and fibre producer in the world and among the top five to ten producers in the world in major petrochemical products. Starting as a small textile company, Reliance has in its journey crossed several milestones to become a Fortune 500 company in less than 3 decades. Reliance Industries Limited operates world-class manufacturing facilities across the country at Allahabad, Barabanki, Dahej, Dhenkanal, Hazira, Hoshiarpur, Jamnagar, Kurkumbh, Nagothane, Nagpur, Naroda, Patalganga, Silvassa and Vadodara. Allahabad Manufacturing Division located in Allahabad, Uttar Pradesh, is spread over 105 acres. It is equipped with polymerization and continuous polymerization facilities. Barabanki Manufacturing Division located near Lucknow, Uttar Pradesh, is spread over 106 acres. It manufactures Black Fibre. Dahej Manufacturing Division located near Bharuch, Gujarat, is spread over 1,778 acres. It comprises of an ethane / propane recovery unit, a gas cracker, a caustic chlorine plant and 4 downstream plants, which manufacture polymers and fibre intermediates.
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Dhenkanal Manufacturing Division located in Baulpur, Orissa, is spread over 227 acres. It manufactures polyester staple fibre. Hoshiarpur Manufacturing Division located in Hoshiarpur, Punjab, is spread over 69 acres. It manufactures a wide range of PSF, PFF, POY and polyester chips. Hazira Manufacturing Division located near Surat, Gujarat, is spread over 700 acres. It comprises of a Naptha cracker feeding downstream fibre intermediates, plastics and polyester plants. Jamnagar Manufacturing Division located in Jamnagar, Gujarat, is spread over 7,400 acres. It comprises of a petroleum refinery and associated petrochemical plants. The refinery is equipped to refine various types of crude oil (sour crude, sweet crude or a mixture of both) and manufactures various grades of fuel from motor gasoline to Aviation Turbine Fuel (ATF). The petrochemicals plants produces plastics and fibre intermediates. Kurkumbh Manufacturing Division located near Pune, Maharashtra, is spread over 34 acres. It manufactures fibre intermediates. Nagothane Manufacturing Division located in Raigad, Maharashtra, is spread over 1,860 acres. It comprises of an ethane and propane gas cracker and five downstream plants for the manufacture of polymers, fibre intermediates and chemicals. Nagpur Manufacturing Division located in Nagpur, Maharashtra, is spread over 368 acres. It manufactures polyester filament yarn, dope-dyed specialty products of different ranges, fully drawn yarn and polyester chips. Naroda Manufacturing Division located near Ahmedabad, Gujarat, is RIL’s first manufacturing facility and is spread over 150 acres. This synthetic textiles and fabrics manufacturing facility manufactures and markets woven and knitted fabrics for home textiles, synthetic and worsted suiting and shirting, ready to wear garments and automotive fabrics. Patalganga Manufacturing Division located near Mumbai, Maharashtra, is spread over 200 acres. It comprises of polyester, fibre intermediates and linear alklyl benzene manufacturing plants. Silvassa Manufacturing Division located in the Union Territory of Dadra and Nagar Haveli, is spread over 127 acres. It manufactures a wide range of specialty products such as Recron Stretch, Linen Like, Melange, Thick-n-thin and Bi-shrinkage yarns. Vadodara Manufacturing Division located in Vadodara, Gujarat, is spread over 1,263 acres. It comprises of a Naptha cracker and 15 downstream plants for the manufacture of polymers, fibres, fibre intermediates and chemicals.
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The company works under different business segments:
• Exploration and Production
• Petroleum Refining and Marketing
• Petrochemicals
• Textiles
• Retail Products and brands offered by the company:
• Crude oil and natural gas • LPG • Propylene • Naphtha • Gasoline • Jet/Aviation Turbine Fuel • Superior Kerosene Oil • High Speed Diesel • Sulphur • Petroleum Coke • Polypropylene • High Density Polyethylene • Low Density Polyethylene • Linear Low Density Polyethylene • Polyvinyl Chloride • Poly –Olefin • Suitings ,Shirtings,Readymade Garments • Furnishing fabrics • Day curtains • Automotive upholstery • Suitings • Ready-to-stitch • Take away fabric • Fleet management services • Highway hospitality services • Vehicle care services • Linear Alkyl Benzene • Paraxylene • Purified Terephthalic Acid • Mono Ethylene Glycol • Staple Fibre • Filament Yarn • Texturised yarn • Twisted yarn • Moisture management yarn
Profit Before Tax 49510.00 50070.00 58340.00 62459.30
Tax -10990.00 -9990.00 -11240.00 -12491.86
Net Profit 38520.00 40080.00 47100.00 49967.44
Equity capital 16430.00 32700.00 32700.00 32700.00
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 1643.00 3270.00 3270.00 3270.00
EPS 23.44 12.26 14.40 15.28
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Key Ratio
Particulars FY08 A FY09 A FY10 E FY11 E
EBIDTA % 18% 17% 17% 17%
PAT % 11% 8% 8% 8%
P/E ratio (x) 10.95 21.90 19.49 17.18
ROE - % 14% 13% 12% 12%
ROCE - % 11% 12% 12% 12%
EV/EBIDITA (x) 16.01 17.66 10.60 10.32
Debt Equity Ratio 0.65 0.49 0.45 0.41
Price/Book Value 3.55 2.77 2.43 2.13
Charts:
• Net sales & PAT
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• P/E Ratio (x)
• P/BV (X)
21
• EV/EBITDA(X)
Outlook and Conclusion
At the market price of Rs.1087.35, the stock is trading at 19.49 x and 17.18 x for FY11E and FY12E respectively.
On the basis of EV/EBDITA, the stock trades at 10.60 x for FY11E and 10.32 x for
FY12E.
Price to book value of the company is expected to be at 2.43 x for FY11E and 2.13 x for FY12E respectively.
EPS of the company is expected to be at Rs.55.78 and Rs.63.28 for the earnings of
FY11E and FY12E respectively.
RIL has cash and cash equivalents of Rs. 218740.00mn (US$ 4.9 billion). These are in fixed deposits, certificate of deposits with banks and Government securities and bonds. RIL’s net debt is equivalent to 1.2 times PBDIT for the year ended 31st March 2010. Outstanding debt as on 31st March 2010 was Rs. 624950.00mn (US$ 13.9 billion) compared to Rs. 739040.00mn as on 31st March 2009.
The net capital expenditure towards projects for the year ended 31st March 2010 was Rs. 93310.00mn (US$ 2.1 billion).
The Board of Directors of the Company has recommended a dividend of Rs. 7.00 (Rupees seven only) per fully paid-up equity share of Rs. 10/- each.
During the year, production from KG D6 was 507,700 tonnes of crude oil and 14,397 MMSCM of natural gas.
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Reliance Industries announces closing of Marcellus shale joint venture with Atlas
Energy.
The Company has allotted 43,533 equity shares of Rs. 10/- each, on March 31, 2010 to its employees, pursuant to the Employees Stock Option Scheme.
Reliance provides growth capital to Deccan 360 as a strategic investor.
RIL has domestic credit ratings of AAA from CRISIL and FITCH. RIL has investment
grade ratings for its international debt from Moody’s and S&P as Baa2 and BBB respectively. S&P has recently revised its outlook on RIL from “negative” to “stable”.
RIL Solar Group implements Solar Power requirements for the Games Commissions India’s first 1MW solar PV power plant.
Reliance Industries Limited (RIL) and IMG, the world’s leading sports marketing and Management Company, announced an equal joint venture to develop market and manage sports and entertainment in India.
KG D6 completed 365 days of 100% uptime and zero-incident production. Gas production from KG D6 has ramped up to 60 MMSCMD in a short span of 9 months from commencement. All 18 wells of KG D6 have been put for production; current production of about 60 MMSCMD is taken from 16 wells. The design capacity of the KG D6 deepwater gas production facilities were assessed and achieved a flow rate of 80 MMSCM.
The Scheme of Amalgamation of Reliance Petroleum Limited (RPL) with Reliance
Industries Limited (RIL) has been sanctioned by the Hon’ble High Court of Judicature at Bombay and the Hon’ble High Court of Gujarat at Ahmedabad. The Scheme has become effective from 11th September 2009 with the appointed date being 1st April 2008.
We recommend ‘BUY’ this stock with a target price of Rs.1300.00 for medium to long term investment.
Industry Overview Oil and Gas The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian economy. The petroleum and natural gas sector which includes transportation, refining and marketing of petroleum products and gas constitutes over 15 per cent of the GDP. Petroleum exports have also emerged as the single largest foreign exchange earner, accounting for 17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export of petroleum products touching US$ 23.63 billion during April-December 2008.
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In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas exploration blocks under the seventh round of auction of the New Exploration Licensing Policy (NELP-VII). With NELP VIII, the overall number of blocks brought under exploration exceeded 200. The allocation brought in investments worth US$ 1.5 billion. The eighth round of auction which ended on October 12, 2009 attracted over US$1.34 billion in minimum investment. Production
• Refinery production in terms of crude throughput increased to 160.77 MT in 2008-09 as compared to 156.10 MT in 2007-08.
• The production of natural gas went up to 32.84 billion cubic metres tonnes (BCM) in 2008-09, from 32.40 BCM in 2007-08.
• The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is 206.76 MMT, while that of natural gas is 255.27 BCM.
• Cumulative production of crude oil between April-December 2009, was 25,152 MT, while cumulative production of refinery production during the same period was 119,283 MT. Natural gas productions during the same period was 33,846 million cubic metres.
• State-run Indian Oil Corporation Ltd will raise the capacity of its Haldia refinery by 25 per cent to 7.5 million tonnes by end February 2010. It will also expand its 12 million tonnes a year Panipat refinery to 15 million tonnes by August, 2010.
Consumption India's domestic demand for oil and gas is on the rise. As per the Ministry of Petroleum, demand for oil and gas is likely to increase from 186.54 million tonnes of oil equivalent (mmtoe) in 2009-10 to 233.58 mmtoe in 2011-12. India's domestic oil product sales in November 2009 grew 3.7 per cent from a year ago, driven by higher demand for auto fuels, according to government data. Oil product sales were 11.32 million tonnes in November, as per official data. Global Refining Hub India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 per cent over other Asian countries. Already, the fifth largest country in the world in terms of refining capacity, with a share of 3 per cent of the global capacity, India is likely to boost its refining capacity by 45 per cent or 65.3 mtpa (million tonne per annum) over the next five years, according to a Deutsche Bank report. Indian companies plan to increase their refining capacity to 242 mtpa by 2011-12 from about 149 mtpa in 2007. Retail Sector Increase in automobile sales has led to significant investments being made to develop and expand the petroleum retail market. According to US-based consultancy
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Keystone, automobile sales are likely to grow to about 20 million a year by 2030 (from the present 1 million), making India the third largest automobile market in the world. Consequently, state-run fuel retailers Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation together are planning to open 2,263 new petrol pumps in the country during the fiscal year 2010, over an above the 35,068 pumps they already own. Gas Gas demand in India is dominated by the power and fertilizer sectors which account for 66 per cent of the current consumption. According to the Gas Authority of India Ltd (GAIL), gas availability in India is expected to grow at 23 per cent compounded annual growth rate (CAGR) to 312 million standard cubic metres per day (MSCMD) by FY14, buoyed by trebling of domestic production to 254 MSCMD and doubling of regasified liquefied natural gas imports to 58 MSCMD. To capture the opportunity presented by the impending gas surge in India, GAIL is investing significantly in its pipeline network. Over the next three years, it will invest US$ 648.77 million- US$ 756.85 million, expanding its transmission capacity from the current 150 MSCMD to 300 MSCMD. ONGC has struck oil and gas in three new blocks a gas find at Krishna Godavari (K-G) basin off the Andhra coast, an oil find in Charada-3 offshore block in Cambay basin and an oil and gas find in Matar in Vadodara district, both in Gujarat. Reliance Industries has announced the discovery of an oilfield in Gujarat, which is its second major find after the MA field in the Krishna Godavari basin. The BPCL, Videocon consortium has made a substantial discovery of oil in Brazil during drilling of the Wahoo-2 appraisal-cum-exploration well in the offshore Campos Basin. Moreover, ONGC Videsh Limited (OVL) has signed an agreement with Systema, the Russian telecom-finance-oil-gas behemoth, to jointly bid for oil and gas assets in Russia and the Commonwealth of Independent States. Investments and Acquisitions
• Public sector oil companies will spend US$ 11.33 billion in 2010 on expanding supplies and building new transportation networks for oil and gas.
• IOC is setting up a coker plant in West Bengal at an investment of US$ 596.53 million.
• ONGC will invest US$ 696 million for increasing facilities at its oilfields in Assam and Western Offshore to boost output. Moreover, it will spend US$ 5.62 billion on capital expenditure in the next financial year.
• State-run gas utility GAIL will invest over US$ 1.54 billion in laying gas pipelines from Dabhol on the Maharashtra coast to Bengaluru, Kochi and Mangalore.
• Essar Exploration and Production Ltd, an arm of Essar Oil, will invest US$ 400 million in its coal bed methane gas project at Ranigunj in West Bengal by 2012.
• GAIL (India) Limited will pick up a 4 per cent stake, while OVL, the overseas arm of oil and gas major ONGC, will pick up another 8-8.5 per cent in the US$
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2-billion Myanmar-China gas pipeline project, The total investment of GAIL and OVL is expected to be around US$ 250 million.
• Reliance Industries has proposed to invest an additional US$ 1.5 billion in bringing to production four gas discoveries adjoining its prolific gas fields in Krishna-Godavari basin in the country's east coast.
Government Initiatives The government has been taking many progressive measures to create a conducive policy and regulatory framework for attracting investments.
• Allowing 100 per cent foreign direct investment (FDI) in private refineries through automatic route and 26 per cent in government-owned refineries.
• Implementation of the NELP in 1997. • Abolition of the administered pricing policy. • 100 per cent FDI is also allowed in petroleum products, exploration, gas
pipelines and marketing/retail through the automatic route. • Vision-2015 for the oil sector which will focus on providing better services to
customers covering four broad areas of LPG (liquefied petroleum gas), kerosene, auto fuels and compressed natural gas/piped natural gas.
Road Ahead According to a recent CII-KPMG report India's energy sector will provide investment avenues worth US$ 120 billion-US$ 150 billion over the next five years. According to the Investment Commission of India, the total opportunity in the oil and gas sector is expected to reach US$ 35 billion to US$ 40 billion by 2012. Textiles Indian textile industry contributes about 14 per cent to industrial production, 4 per cent to the country's gross domestic product (GDP) and 16.63 per cent to export earnings. Nearly 40 per cent of the textiles produced in the country is exported and the textiles sector is the biggest employment generator after agriculture. The sector is expected to generate 12 million new jobs by 2010. The sector targets US$ 6 billion foreign direct investment (FDI) by 2015 to be invested in green field units in textiles machinery, fabric and garment manufacturing, as well as technical textiles. India has made inroads into the markets of its key competitors which include Asian countries such as Sri Lanka, Bangladesh, Vietnam and Cambodia. The Indian textile and apparel industry is taking a new course by entering the Chinese market. Most of the top global apparel retailers, such as JC Penny, Nautica, Docker and Target, have their sourcing network in India. Indian textiles and apparel exports, which is worth US$ 22 billion, is expected to register a four-fold increase to touch US$ 90 to 100 billion in the next 25 years. Technical Textile Segment Technical textiles segment is expected to employ over 300,000 additional workers increasing the total employment in the sector to 1.2 million by the year 2012. The Government has set up four Centres of Excellence (CoEs) for Meditech, Agrotech,
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Geotech and Protech group of technical textile, providing one-stop facilities for testing, human resource development and research and development. Government Initiative The Government has announced the release of a subsidy of US$ 533.87 million for the textile industry under the Technology Upgradation Fund scheme (TUFs). The government extends 10 per cent capital subsidy and 5 per cent interest subsidy on installation of machineries and for processing machinery under the TUFS. A 41-member Working Group has also been announced to be set up with a National Fibre Policy, to ensure self-sufficiency in fibre consumption and export requirements in India. The Textiles Committee has also been reconstituted in order to ensure standard quality of textiles both for internal marketing as well as exports. The committee will also establish laboratories and test houses for testing of textiles. In addition, an online marketing and sales portal has also been launched by the textile minister. The e-marketing platform, developed by the Central Cottage Industries Corporation of India and the Handicraft and Handlooms Export Corporation of India, will host more than 1,000 wide ranging handicrafts and handlooms products. It will also provide online services, such as e-payment facility through major debit/credit card as well as online tracking of the shipment. Moreover, the Ministry of Textiles is considering setting up textile parks at Vidarbha and Marathwada, the largest cotton growing regions in Maharashtra. Currently seven textile parks are already in various stages of completion in Maharashtra. Advantage India India offers cheaper production and marketing costs and enormous opportunities that have tempted Taiwanese companies to work on joint ventures with Indian companies, especially for the manufacture of manmade fabrics. Several European textile and textile machinery manufacturing companies have shown interest in sourcing garments from India. Textile companies were keen to set up base in India due to the cheap labour available here. India offers various incentives like low-cost labour and intellectual right protection to foreign investors. The country allows 100 per cent FDI in the textiles sector. Investments According to the Minister for Textiles, Mr Dayanidhi Maran, around US$ 5.14 billion of foreign investment is expected to be made in India in the textile sector over the next five years. Indian textile companies are expanding their manufacturing facilities to industrial fabrics to tap new customers in the construction, automobiles and healthcare sectors, who are currently importing these products. Also, some of the major global luxury apparel retailers are eyeing markets like India. According to industry analysts, the market for luxury and premium brands in India is estimated at about US$ 1.3 billion - US$ 1.5 billion and growing at about 25-30 per cent.
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• Retail apparel firm Koutons India plans to open 100 new stores by fiscal. • Alok Industries, S Kumars Nationwide, Jindal Cotex and SRF are keen to
expand their footprint. • Ludhiana-based Jindal Cotex is investing US$ 49.6 million in two units in
Himachal Pradesh to make medical and industrial textiles. • S Kumars Group projects to invest 10 billion rupees over the next 5 years to set
up new technical textiles facilities in India. It will introduce three international brands by the end of this fiscal.
• Tyre cord maker SRF Ltd is setting up a plant for laminated fabrics in Kashipur in Uttarakhand.
• Mumbai-based real estate developer Ackruti City plans to set up a US$ 65.19 million textile park on 60 acres in suburban Biwandi near Mumbai.
• Raymond Ltd is planning to target revenues of US$ 42.69 million with the launch of 300 more retail shops by March 2011.
• World's leading lingerie brand, Triumph International, plans to invest over US$ 216.75 million in India to open 12 more flagship outlets and 30 additional EPS (Exclusive Partner Stores) during the year.
The Road Ahead Apparel Export Promotion Council (AEPC), which comes under Union Ministry of Textiles, has undertaken the task of attracting foreign direct investment by showcasing the huge untapped domestic market in India. The AEPC highlighted the conducive environment for manufacturing in the sector and raised the slogan of "come, invest, produce and sell in India", coined by Textiles Minister, Dayanidhi Maran. The ministry has plans to take delegations to Switzerland, Italy and Istanbul followed by visits to France, Germany and the US. The aim is to tap foreign capital towards establishing green field units in textiles machinery, fabric and garment manufacturing and attracting investments in the field of technical textiles. India offers various incentives to foreign investors like low-cost labour and intellectual right protection. The government has allowed 100 per cent FDI in the textiles sector. India has a vertical and horizontal integrated textiles value chain, and represents a strong presence in the entire value chain from raw materials to finished goods. The Synthetic and Rayon Textile Export Promotion Council (SRTEPC) has set a target to more than double the export of man-made textile from the country. Presently, the global man-made fibre (MMF) trade accounts for 60 per cent of total trade in textiles and India accounts for less than three per cent at US$3.41 billion. SRTEPC plans to increase exports to US$ 6.2 billion by capturing four per cent market share by 2011-12. Retail The Indian retail market, which is the fifth largest retail destination globally, has been ranked as the most attractive emerging market for investment in the retail sector by AT Kearney's eighth annual Global Retail Development Index (GRDI), in 2009. As per a study conducted by the Indian Council for Research on International Economic
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Relations (ICRIER), the retail sector is expected to contribute to 22 per cent of India's GDP by 2010. With rising consumer demand and greater disposable income, the US$ 400 billion Indian retail sector is clocking an annual growth rate of 30 per cent. It is projected to grow to US$ 700 billion by 2010, according to a report by global consultancy Northbridge Capital. The organized business is expected to be 20 per cent of the total market by then. In 2008, the share of organized retail was 7.5 per cent or US$ 300 million of the total retail market. A McKinsey report, 'The rise of Indian Consumer Market', estimates that the Indian consumer market is likely to grow four times by 2025. Commercial real estate services company, CB Richard Ellis' findings state that India's retail market has moved up to the 39th most preferred retail destination in the world in 2009, up from 44 last year. India continues to be among the most attractive countries for global retailers. Foreign direct investment (FDI) inflows as on September 2009, in single-brand retail trading, stood at approximately US$ 47.43 million, according to the Department of Industrial Policy and Promotion (DIPP). India's overall retail sector is expected to rise to US$ 833 billion by 2013 and to US$ 1.3 trillion by 2018, at a compound annual growth rate (CAGR) of 10 per cent. As a democratic country with high growth rates, consumer spending has risen sharply as the youth population (more than 33 percent of the country is below the age of 15) has seen a significant increase in its disposable income. Consumer spending rose an impressive 75 per cent in the past four years alone. Also, organized retail, which is pegged at around US$ 8.14 billion, is expected to grow at a CAGR of 40 per cent to touch US$ 107 billion by 2013. The organized retail sector, which currently accounts for around 5 per cent of the Indian retail market, is all set to witness maximum number of large format malls and branded retail stores in South India, followed by North, West and the East in the next two years. Tier II cities like Noida, Amritsar, Kochi and Gurgaon, are emerging as the favoured destinations for the retail sector with their huge growth potential. Further, this sector is expected to invest around US$ 503.2 million in retail technology service solutions in the current financial year. This could go further up to US$ 1.26 billion in the next four to five years, at a CAGR of 40 per cent. Moreover, many new apparel brands such as Zara, the fashion label owned by Inditex SA of Spain, UK garment chain Topshop, the Marc Ecko clothing line promoted by the US entrepreneur of the same name and the Japanese casual wear brand Uniqlo are preparing to open outlets in India. Buoyed by improved consumer spending, sales of listed retailers increased by 12 per cent in the September 2009 quarter compared with the same period in 2008.
• Australia's Retail Food Group is planning to enter the Indian market in 2010. It has ambitious investment plans which aim to clock revenue of US$ 87 million from the country within five years from start of operations.
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• British retail major Marks & Spencer (M&S) is looking at scaling up its India operations and plans to open at least 50 more outlets in the country over the next few years.
• Koutons Retail India plans to open 200 stores in FY11 in addition to its existing 1,400. Of the 200 stores, 100 would be family concept stores, which would include women and children's wear.
• Reliance Footprint, part of Reliance Retail, plans to spend US$ 86.62 million to add 100 outlets across the country in two years to sell branded footwear. It currently has 16 outlets.
• Retail chain Suvidhaa Infoserve plans to open 1,000-1,200 new outlets every month across the country and is eyeing a 100,000 strong network in the next two to three years. At present, the Mumbai-based firm has 18,000 convenient neighbourhood stores called 'Suvidhaa Point' across the country in over 20 states and over 400 cities.
• Lifestyle International, part of the Dubai-based US$ 1.5 billion Landmark Group, plans to have over 50 stores across India by 2012–13. These will include 35 Lifestyle stores for retailing apparel, cosmetics and footwear, besides 15 Home Centres that sell home furnishing goods.
• Watch maker, Timex India, is looking at increasing its presence in the country by adding another 52 stores by March 2011 at an investment of US$ 1.3 million taking its total store count to 120.
• Wills Lifestyle plans to expand its operations by opening 100 new stores in the next three years. It also plans to concentrate on online buyers.
• Pantaloon Retail India (PRIL) is planning to invest US$ 77.88 million this fiscal to add up to 2.4 million sq ft retail space at its existing operations. Pantaloon Retail is also looking to hive off its value retail chain, Big Bazaar, into a separate subsidiary, which may eventually go for an initial public offer (IPO). PRIL proposes to open 155 Big Bazaar stores by 2014, increasing its total network to 275 stores.
Policy Initiatives
• 100 per cent FDI is allowed in cash-and-carry wholesale formats. Franchisee arrangements are also permitted in retail trade.
• 51 per cent FDI is allowed in single-brand retailing. Road Ahead According to industry experts, the next phase of growth is expected to come from rural markets. According to a new market research report by RNCOS titled, 'Booming Retail Sector in India', organised retail market in India is expected to reach US$ 50 billion by 2011.
• Number of shopping malls is expected to increase at a CAGR of more than 18.9 per cent from 2007 to 2015.
• Rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent.
• Organised retailing of mobile handset and accessories is expected to reach close to US$ 990 million by 2010.
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• Driven by the expanding retail market, the third party logistics market is forecasted to reach US$ 20 billion by 2011.
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