For Q4’09, the Company witnessed a decline in net sales, down 23.9% y-o-y to Rs283.6 billion, primarily due to the depressed petrochemical and refining products prices resulting from the weakening global demand for petroleum products.
However, the lower feedstock prices aided improved EBITDA margins, up 310 bps y-o-y to 19.2%, and partially compensated the fall in the top line. EBITDA declined 9.7% y-o-y to Rs54.4 billion in Q4’09.
During the quarter, other income jumped 2.4x to Rs9.9 billion, as against Rs2.8 billion in the corresponding quarter of the previous year.
An increase in other income largely restricted the decline in adjusted net income to a marginal 1% on y-o-y basis, which stood at Rs38.7 billion for the quarter.
In Q4’09, revenues from the petrochemical segment plummeted 31% y-o-y to Rs97.2 billion, largely because of the fall in demand of petrochemical products caused by the global economic slowdown.
However, the segment witnessed a sharp improvement in the operating margins, which improved as much as 730 bps to 17.5%.
The improvement, which was primarily driven by lower feedstock costs, helped the Company to register a positive EBIT growth for the fourth quarter. In Q4’09, EBIT increased 17.5% y-o-y to Rs17.2 billion.
During the quarter, the Company witnessed a fall in the average realization prices, which we believe will continue to exert pressure on the top line contribution from the segment; however with feedstock prices at lower levels, the Petrochemical segment should continue to maintain healthy operating margins.
Revenues from the refining segment declined 24.6% y-o-y in Q4’09 due to lower petroleum product prices.
Margins also declined from 9.9% in Q4’08 to 9% in Q4’09. During the quarter, GRM dipped to $9.9 per barrel from $15.5 per barrel in Q4’08.
We believe that the Company will be able to maintain its growth momentum in the mid-to-long term primarily on the back of its E&P segment.
In addition, RPL, once fully operational, will further add to it. However, we also believe that the full impact of these two projects will be witnessed in FY11.
Accordingly, we have extended our estimates to FY11. Our SOTP-based valuation gives a fair value of Rs1,795, which implies no significant upside potential from the current market price of Rs1,876.7, and thus we maintain our HOLD rating on the stock.