Key Highlights:

For Q2FY12, Reliance Industries’ (RIL’s) EBITDA and PBT were broadly in line with Prabhudas Lilladher's expectations. EBITDA, during the quarter, registered a growth of 4.8% y-o-y on the back of strong refining margins and stood at Rs98.4bn against their expectation of Rs97.2bn.

- Key features during the quarter were a) improved refining margins (US$10.1/bbl v/s US$7.9/bbl in Q2FY11) and b) lower KG-D6 gas production at 45mmscmd compared to 59mmscmd in Q2FY11. Refining EBIT declined 3.9% on sequential basis on the back of lower refining margins, thereby, forming 43.7% of the total EBIT during the quarter compared to 45.5% in Q1FY12.

- Prabhudas Lilladher believe that negative developments viz. expectation of subdued gas production outlook from the KG basin over the period of next 2-2.5 years, reduction of KG-D6 gas supplies for the refining and petrochemical business, along with limited upsides in commodity margins in petrochemical and refining segment in the near term, are likely to result in stagnant profitability for RIL in the near term.

- The same is likely to result in absence of any meaningful stock price trigger in the near term. Another major concern, which RIL continues to face, is deployment of the cash flows. However, on the flipside, all the negatives are largely factored into the stock price. Moreover, long-term promises of RIL’s E&P blocks are undeniable as reflected by RIL-BP deal.