20 October 2011

Reliance Industries – 2QFY12 results: no surprises :: RBS

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RIL reported in-line 2QFY12 results. The BP transaction is effective from 30 Aug 2011 and we
believe that RIL's standalone balance sheet would have moved to a net cash position on 3
October 2011 (when the final cash instalment from BP was received). We maintain our earnings
estimates, Buy rating and TP of Rs925.


Overall results in line
􀀟 RIL reported 2QFY12 net profit of Rs57bn (16% yoy), which was in line with our as well as
Bloomberg consensus expectations. The BP transaction was effective from 30 August 2011,
meaning that the drop in stake in KG-D6 block from 90% to 60% was effective from that date.
The final transaction value (which was value of US$7.2bn agreed on 1 January 2011 less
cash inflows due to BP by 30 August 2011) worked out to Rs322bn, which was adjusted
against the cost of the assets. As a result of this adjustment, the drop in depreciation for the
month of September was Rs2.7bn. Consequently, the depreciation costs in 2HFY12 would
broadly decline at that rate (also depending upon production rate).
􀀟 Gross debt at Rs714bn was up Rs44bn qoq only due to rupee depreciation. Net debt at end
of quarter was Rs99.1bn (compared to Rs212.6bn at end of 1QFY12). At end of 2QFY12, the
last instalment due from BP was Rs147bn, which was disclosed under 'Other current assets'.
This amount was realised on 3 October 2011, which leads us to believe that RIL standalone
would now be a net cash company.
E&P segment
􀀟 Segment EBIT at Rs15.3bn (down 10.3% yoy) was in-line with expectations. KG-D6 gross
gas production was 44.8mmscmd in 2QFY1 2 (down from 48.1 in 1QFY12) and management
has not provided any guidance on the near-term production profile. RIL and BP are now keen
to develop the balance discoveries in KG-D6 and expect the additional production to start
from 2015 (we are assuming 2016).
􀀟 RIL and BP have decided to review afresh the entire exploration portfolio and new drilling has
been stopped until completion of this review. Given that each block needs to be explored
within a specified period, the Indian government (GOI) may need to be asked to extend these
deadlines. RIL/BP are unlikely to commence drilling unless these GOI extensions are in
place.
􀀟 RIL's CBM block can potentially produce 4mmscmd and it is currently seeking GOI approval
to price this gas at per LNG long-term contracts. For evacuation of this gas, a 300km pipeline
connection to GAIL's HVJ pipeline needs to be built, which would take 24 months. Pipeline
construction would commence only after GOI approves the gas price.


R&M segment
􀀟 Segment EBIT at Rs30.8 (up 40.3% yoy) was 6% below our estimates. Refining throughput
was 17.1mmt (our estimate 16.9mmt) while GRM was US$10.1/bbl (US$10.2/bbl). While
Singapore GRMs were strong (US$9.2/bbl vs US$8.8/bbl in 1QFY12), they were driven by
higher margins for gasoline and fuel oil. The relative weakness in RIL GRMs were on account
of lower crude differentials (US$3.8/bbl vs US$5/bbl in 1QFY12) and lower margins for diesel
(US$17.1 vs US$15.1 in 1QFY12). Further, most of the internal gas consumption was
sourced via LNG where pricing has strengthened.
Petrochem segment
􀀟 Segment EBIT at Rs24.2bn (up 10.2% yoy) was up 13% yoy. Realised margins appear to be
better than our estimates driven by a sharp 21% qoq improvement in demand for both
polymers and polyester.
􀀟 The final investment decision for the two mega projects (petchem cracker and coke
gasification) is still pending. Project economics are improving as time is passing (costs are
coming down) and the company is obviously trying to get the capex cycle right.
􀀟 The polyester and polyester intermediate projects appear on track for completion by 2HCY13.
Other issues
􀀟 Asset capitalisation during the quarter of Rs54.9bn was mainly on account of capitalisation of
forex losses (Rs45bn). The actual cash spending on new assets was just Rs8.5bn.
􀀟 RIL management did not provide any guidance on timing of the launch for the telecom
operations.
􀀟 During 1HFY12, RIL standalone invested an additional Rs8bn in retail operations, Rs2.5bn in
telecom and Rs2bn in SEZs.


HDFC Ltd – Remains unfettered ::: RBS

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It was business as usual for HDFC Ltd in 2QFY12. HDFC continued to deliver largely stable
spreads and asset quality remained good. The incremental regulatory provision requirement was
charged off against reserves in 2QFY12. Valuations of the core mortgage business appear
attractive. Maintain Buy.


2QFY12: Business as usual
Approvals rose about 15% yoy in 2QFY12 (+18% yoy in 1HFY12) and disbursements grew about
18% yoy in 2QFY12 (+19% yoy in 1HFY12). The individual loan book grew 17.6% yoy as of
September 2011 (+3% qoq), while the corporate loan book rose 23.6% yoy (+1% qoq). With
individual loans at about 63% and corporate loans at about 36%, the loan book mix remained
largely stable qoq (see Chart 1). Reported spreads remained stable qoq at about 2.3% in
2QFY12. The reported net interest income grew 15.8% yoy in 1HFY12. However, adjusted for the
interest on zero coupon bonds (ZCB) – Rs3.4bn in 1HFY12 vs Rs5.3bn in FY11 – the net interest
income rose about 13.6% yoy in 1HFY12. Higher dividend income and profit on the Intelenet
stake sale in 2QFY12 boosted non-interest income in 2QFY12.
NHB provision requirement for standard assets and others
National Housing Bank (NHB) directed housing finance companies (HFC) in August 2011 to
make 40bp standard asset provision (no standard provision requirement earlier) on retail
mortgages. It also increased the slab-wise provisioning requirement for bad loans. Accordingly,
HDFC provided about Rs2.6bn (net of deferred tax) in 2QFY12 to meet the incremental provision
requirement. This was, however, charged off from reserves carried on balance sheet. Against the
total provision requirement of about Rs12bn as of September 2011 (see Table 2), HDFC had
about Rs15.3bn, implying excess provisions of about Rs3.3bn (same as the June 2011 level).
No change to our estimates: Buy maintained
Our earnings estimates remain unchanged. We mark to market the value of listed associates in
our SOTP valuation and arrive at a revised target price of Rs768 (from Rs763). The outstanding
ZCBs are about Rs72bn as of date (see Table 3) against investments in subsidiaries/associates
of about Rs80bn. We charge off interests on ZCB to the income statement, which largely explains
the difference between our estimates and the Bloomberg consensus. However, this adjustment
will have no impact on our book value calculation. At the current market price, the core mortgage
business trades at 4.1x FY13F book value

BSE, Bulk deals, 20/10/2011

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Deal DateScrip CodeCompanyClient NameDeal Type *QuantityPrice **
20/10/2011508869Apollo HospTHE BANK OF NEW YORK MELLON A/C INTEGRATED (MAURITIUS) HEALTHCAREB4093860513.00
20/10/2011508869Apollo HospBISIKAN BAYU INVESTMENTS (MAURITIUS) LIMITEDS4093860513.00
20/10/2011531560Aroma EnterprisesCHHOTALAL SHAH MAHENDRAB4500081.74
20/10/2011531560Aroma EnterprisesJAYANTKUMAR & COMPANY PROP :JAYANTKUMAR MANUBHAI PB4800080.00
20/10/2011531560Aroma EnterprisesJITENDRA BABULAL SANGHVIS4500081.74
20/10/2011531568Ashutosh PaperKPM INFOTECH PRIVATE LIMITEDB93000173.98
20/10/2011531695Dhvanil ChemNATHABHAI KHIMABHAI LUNGARIYAB4400022.49
20/10/2011533638FLEXITUFFA K G SECURITIES AND CONSULTANCY LTDB123299166.92

NSE, Bulk deals, 20-Oct-2011

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DateSymbolSecurity NameClient NameBuy / SellQuantity TradedTrade Price /
Wght. Avg.
Price
Remarks
20-Oct-2011APOLLOTYREApollo Tyres Ltd.MERRILL LYNCH CAPITAL MARKETS ESPANA S.A. SVBSELL26,69,00052.10-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedBRIJWASI SECURITIES PVT LTDSELL1,35,000160.27-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedCHANDARANA INTERMEDIARIES BROKERS P. LTDBUY1,91,509166.37-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedCHANDARANA INTERMEDIARIES BROKERS P. LTDSELL1,91,509166.90-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedGKN SECURITIESBUY1,88,620165.17-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedGKN SECURITIESSELL1,88,620165.68-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMADHUVAN VINCOM PRIVATE LIMITEDBUY1,52,055159.12-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMADHUVAN VINCOM PRIVATE LIMITEDSELL35,591164.01-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMARU SECURITIES PVT LIMITEDBUY1,59,393155.95-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMARU SECURITIES PVT LIMITEDSELL90,500165.10-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMUSKAN AGENCIES AND TRADING LTDBUY6,04,727164.76-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedMUSKAN AGENCIES AND TRADING LTDSELL6,04,727162.14-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedPASUPATI TRADELINK PVT LTDSELL2,70,000163.22-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedPRIME SECURITIES LTDBUY2,50,000165.00-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedR.M. SHARE TRADING PVT LTDBUY1,90,317164.87-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedR.M. SHARE TRADING PVT LTDSELL1,90,467165.46-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedSWATI RAJESH SHAHBUY1,19,320163.59-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedSWATI RAJESH SHAHSELL1,31,442166.09-
20-Oct-2011FLEXITUFFFlexituff Inter LimitedSWISS FINANCE CORPORATION (MAURITIUS) LIMITEDSELL2,50,000160.05-
20-Oct-2011MARGMarg LimitedRELIANCE CAPITAL ASSET MANAGEMENT LIMITED PMS A/CSELL2,40,00088.82-
20-Oct-2011MBSWITCHM&B Switchgears LtdADROIT FINANCIAL SERVICES PRIVATE LIMITEDBUY5,66,474208.66-
20-Oct-2011MBSWITCHM&B Switchgears LtdADROIT FINANCIAL SERVICES PRIVATE LIMITEDSELL5,66,474208.83-
20-Oct-2011MBSWITCHM&B Switchgears LtdALIVE CONSULTANTS ALIVEBUY1,68,593183.83-
20-Oct-2011MBSWITCHM&B Switchgears LtdALIVE CONSULTANTS ALIVESELL1,68,593183.88-
20-Oct-2011MBSWITCHM&B Switchgears LtdAMIT MANILAL GALABUY1,18,567211.45-
20-Oct-2011MBSWITCHM&B Switchgears LtdAMIT MANILAL GALASELL1,18,567211.53-
20-Oct-2011MBSWITCHM&B Switchgears LtdANKIT GUPTABUY5,41,111228.72-
20-Oct-2011MBSWITCHM&B Switchgears LtdANKIT GUPTASELL5,41,111228.71-
20-Oct-2011MBSWITCHM&B Switchgears LtdASHWIN STOCKS AND INVESTMENT PRIVATE LIMITEDBUY1,15,500163.65-
20-Oct-2011MBSWITCHM&B Switchgears LtdASHWIN STOCKS AND INVESTMENT PRIVATE LIMITEDSELL1,15,500167.10-
20-Oct-2011MBSWITCHM&B Switchgears LtdBABRIYA HIMANSHU JAYANTILALBUY1,30,390193.36-
20-Oct-2011MBSWITCHM&B Switchgears LtdBABRIYA HIMANSHU JAYANTILALSELL1,30,390192.63-
20-Oct-2011MBSWITCHM&B Switchgears LtdBAKORI RINKUBEN RASHMINBHAIBUY1,22,219176.71-
20-Oct-2011MBSWITCHM&B Switchgears LtdBAKORI RINKUBEN RASHMINBHAISELL1,22,219176.82-
20-Oct-2011MBSWITCHM&B Switchgears LtdBP FINTRADE PRIVATE LIMITEDBUY3,33,625201.07-
20-Oct-2011MBSWITCHM&B Switchgears LtdBP FINTRADE PRIVATE LIMITEDSELL3,33,124201.40-
20-Oct-2011MBSWITCHM&B Switchgears LtdBP WEALTH MANAGEMENT PVT LTDBUY1,01,340157.42-
20-Oct-2011MBSWITCHM&B Switchgears LtdBP WEALTH MANAGEMENT PVT LTDSELL1,01,340161.67-
20-Oct-2011MBSWITCHM&B Switchgears LtdC D INTEGRATED SERVICES LTD.BUY1,01,348214.36-
20-Oct-2011MBSWITCHM&B Switchgears LtdC D INTEGRATED SERVICES LTD.SELL1,01,348214.38-
20-Oct-2011MBSWITCHM&B Switchgears LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDBUY25,17,390199.69-
20-Oct-2011MBSWITCHM&B Switchgears LtdCHANDARANA INTERMEDIARIES BROKERS P. LTDSELL25,17,390198.39-
20-Oct-2011MBSWITCHM&B Switchgears LtdDEEPAK JAGDISHRAM GUPTABUY2,42,529194.28-
20-Oct-2011MBSWITCHM&B Switchgears LtdDEEPAK JAGDISHRAM GUPTASELL2,42,529199.79-
20-Oct-2011MBSWITCHM&B Switchgears LtdDINESH MUNJAL(HUF)BUY3,19,747194.69-
20-Oct-2011MBSWITCHM&B Switchgears LtdDINESH MUNJAL(HUF)SELL3,19,747194.36-
20-Oct-2011MBSWITCHM&B Switchgears LtdDIVYA DRISHTI MERCHANTS PVT LTDBUY1,50,100143.10-
20-Oct-2011MBSWITCHM&B Switchgears LtdDIVYA DRISHTI MERCHANTS PVT LTDSELL40,100242.73-
20-Oct-2011MBSWITCHM&B Switchgears LtdESHAN FINANCIAL SERVICES P. LTD.BUY1,00,000129.00-
20-Oct-2011MBSWITCHM&B Switchgears LtdESHAN FINANCIAL SERVICES P. LTD.SELL1,00,000298.36-
20-Oct-2011MBSWITCHM&B Switchgears LtdGAGAN ASHOK KUMAR KHEMKABUY1,05,000153.01-
20-Oct-2011MBSWITCHM&B Switchgears LtdGAGAN ASHOK KUMAR KHEMKASELL1,05,000224.79-
20-Oct-2011MBSWITCHM&B Switchgears LtdGENUINE STOCK BROKERS PVT LTDBUY7,67,758208.10-
20-Oct-2011MBSWITCHM&B Switchgears LtdGENUINE STOCK BROKERS PVT LTDSELL7,67,758208.05-
20-Oct-2011MBSWITCHM&B Switchgears LtdGKN SECURITIESBUY25,12,245196.33-
20-Oct-2011MBSWITCHM&B Switchgears LtdGKN SECURITIESSELL25,12,245196.11-
20-Oct-2011MBSWITCHM&B Switchgears LtdHARBUX SINGH SIDHUBUY3,11,211194.62-
20-Oct-2011MBSWITCHM&B Switchgears LtdHARBUX SINGH SIDHUSELL3,11,211194.53-
20-Oct-2011MBSWITCHM&B Switchgears LtdHARNARAYAN JAYRAMDAS PATELBUY1,16,500180.39-
20-Oct-2011MBSWITCHM&B Switchgears LtdHARNARAYAN JAYRAMDAS PATELSELL1,16,500145.51-
20-Oct-2011MBSWITCHM&B Switchgears LtdINVENTURE MERCHANT BANKER SERVICES PRIVATE LIMITEDBUY1,25,000177.73-
20-Oct-2011MBSWITCHM&B Switchgears LtdJAYANTILAL B JAINSELL1,03,338167.25-
20-Oct-2011MBSWITCHM&B Switchgears LtdJIVRAJ BACHUBHAI ZALABUY10,33,027182.03-
20-Oct-2011MBSWITCHM&B Switchgears LtdJIVRAJ BACHUBHAI ZALASELL10,30,167181.13-
20-Oct-2011MBSWITCHM&B Switchgears LtdJMD STOCKS VIMALKUMAR DIWANCHAND BHUTIANIBUY1,06,380206.02-
20-Oct-2011MBSWITCHM&B Switchgears LtdJMD STOCKS VIMALKUMAR DIWANCHAND BHUTIANISELL1,06,380205.33-
20-Oct-2011MBSWITCHM&B Switchgears LtdKALASH SHARES & SECURITIES PRIVATE LIMITEDBUY2,04,758242.37-
20-Oct-2011MBSWITCHM&B Switchgears LtdKALASH SHARES & SECURITIES PRIVATE LIMITEDSELL2,04,758242.42-
20-Oct-2011MBSWITCHM&B Switchgears LtdKAUR SUKHVINDERBUY2,87,151209.86-
20-Oct-2011MBSWITCHM&B Switchgears LtdKAUR SUKHVINDERSELL2,87,151209.98-
20-Oct-2011MBSWITCHM&B Switchgears LtdKORP SECURITIES LTDBUY3,21,215194.03-
20-Oct-2011MBSWITCHM&B Switchgears LtdKORP SECURITIES LTDSELL2,21,215211.99-
20-Oct-2011MBSWITCHM&B Switchgears LtdLALIT KRISHNAKUMAR BAJPAIBUY1,32,500176.09-
20-Oct-2011MBSWITCHM&B Switchgears LtdLALIT KRISHNAKUMAR BAJPAISELL1,32,500199.77-
20-Oct-2011MBSWITCHM&B Switchgears LtdMANIPUT INVESTMENTS PVT. LTD.BUY1,81,399214.66-
20-Oct-2011MBSWITCHM&B Switchgears LtdMANIPUT INVESTMENTS PVT. LTD.SELL1,80,899214.33-
20-Oct-2011MBSWITCHM&B Switchgears LtdMARWADI SHARES AND FINANCE LIMITEDBUY3,57,031189.76-
20-Oct-2011MBSWITCHM&B Switchgears LtdMARWADI SHARES AND FINANCE LIMITEDSELL3,57,031190.19-
20-Oct-2011MBSWITCHM&B Switchgears LtdMILLENNIUM STOCK BROKING PVT. LTD.BUY3,91,582193.85-
20-Oct-2011MBSWITCHM&B Switchgears LtdMILLENNIUM STOCK BROKING PVT. LTD.SELL3,91,582192.16-
20-Oct-2011MBSWITCHM&B Switchgears LtdMUKUL RAMVALLABH TIBREWALABUY1,31,134231.20-
20-Oct-2011MBSWITCHM&B Switchgears LtdMUKUL RAMVALLABH TIBREWALASELL1,31,134230.54-
20-Oct-2011MBSWITCHM&B Switchgears LtdNAVEEN TAPARIABUY3,20,986213.12-
20-Oct-2011MBSWITCHM&B Switchgears LtdNAVEEN TAPARIASELL3,20,986229.86-
20-Oct-2011MBSWITCHM&B Switchgears LtdOPG SECURITIES PVT. LTD.BUY1,81,012204.07-
20-Oct-2011MBSWITCHM&B Switchgears LtdOPG SECURITIES PVT. LTD.SELL1,81,012204.05-
20-Oct-2011MBSWITCHM&B Switchgears LtdPANTHER FINVEST PVT. LTD.BUY1,40,542180.76-
20-Oct-2011MBSWITCHM&B Switchgears LtdPANTHER FINVEST PVT. LTD.SELL1,40,542184.24-
20-Oct-2011MBSWITCHM&B Switchgears LtdPRAGYA EQUITIES PVT. LTD.BUY1,20,032227.33-
20-Oct-2011MBSWITCHM&B Switchgears LtdPRAGYA EQUITIES PVT. LTD.SELL1,19,032215.80-
20-Oct-2011MBSWITCHM&B Switchgears LtdPROMPT CORPORATE SERVICES LTD.BUY1,09,264202.74-
20-Oct-2011MBSWITCHM&B Switchgears LtdPROMPT CORPORATE SERVICES LTD.SELL1,09,264202.87-
20-Oct-2011MBSWITCHM&B Switchgears LtdR.M. SHARE TRADING PVT LTDBUY18,73,893189.09-
20-Oct-2011MBSWITCHM&B Switchgears LtdR.M. SHARE TRADING PVT LTDSELL18,73,893189.47-
20-Oct-2011MBSWITCHM&B Switchgears LtdRAHUL DOSHIBUY5,04,711199.71-
20-Oct-2011MBSWITCHM&B Switchgears LtdRAHUL DOSHISELL5,04,711205.29-
20-Oct-2011MBSWITCHM&B Switchgears LtdSALASAR STOCK BROKING LTD.BUY3,73,359175.09-
20-Oct-2011MBSWITCHM&B Switchgears LtdSALASAR STOCK BROKING LTD.SELL1,98,359256.09-
20-Oct-2011MBSWITCHM&B Switchgears LtdSHREE NAMAN SECURITIES & FINANCE PVT. LTDBUY1,23,974212.92-
20-Oct-2011MBSWITCHM&B Switchgears LtdSHREE NAMAN SECURITIES & FINANCE PVT. LTDSELL1,19,868210.14-