Reliance Petroleum - use of IPO funds

Reliance Petroleum Ltd has informed that the Board of Directors of the Company at its meeting held on January 15, 2008, has approved the following disclosures, which were reviewed by the Audit Committee:

1. The status of the Project as on December 31, 2007 is in accordance with the major milestones stated in the Prospectus dated April 28, 2006.

2. The Company had raised Rs 8,100 crore through Initial Public Offering. As on December 31, 2007, the Company has utilised Rs 22,668 crore for the Project against a projected utilisation of funds of Rs 20,136 crore. The variation is mainly due to payments in advance under project contracts for continued efficient and speedy implementation of the Project. Based on the progress made till date the Project is expected to be completed ahead of December 2008.

3. There were no investor complaints pending as on September 30, 2007. During the quarter, the Company received 121 complaints. Of the above, 119 complaints were resolved / replied and there were 2 complaints pending as on December 31, 2007. These complaints have since been resolved / replied.

Reliance Industries sells 4.01% of RPL's equity for Rs 4,023 crore to maximize overall shareholder value

Reliance Industries Ltd (RIL) has announced that the Company has sold 18.04 crore equity shares, representing 4.01% of the equity share capital of Reliance Petroleum Ltd (RPL) out of its' holding of 75%. The aggregate sale consideration is Rs 4,023 crore.

After this sale, the shareholding of RIL in RPL is 70.99%.

RPL made an offering in May 2006 for 20% of its' equity represented by 90 crore shares. This offering was the most successful IPO until then with overall demand exceeding USD 32 billion.

The sale of RPL shares was conducted by transactions through the Stock Exchanges and has helped to further broad base the shareholding pattern of RPL. The number of shareholders of RPL has increased from 12 lac shareholders at the time of IPO to 16 lac.

The sale of shares monetizes only a very small portion of RIL's holding in RPL.

RPL refinery update !

Reliance Petroleum Ltd (RPL) has announced that the Company has set a blistering pace on all implementation fronts and achieved over 70% overall progress in implementation of its large and complex refinery, coming up in a Special Economic Zone at Jamnagar. Based on the progress made till date, in the engineering, procurement and construction activities, RPL expects to complete the project ahead of December 2008.

During the quarter, project implementation gained further momentum and led to achievement of several significant milestones, including the following:

- Engineering efforts reached a close-out phase with over 97% cumulative progress so far

- Overall procurement progress exceeded 92% during the quarter

- Over 2500 equipments, including several critical, long lead equipments and over dimensional consignments (ODC) have already been delivered at site

- Over 95% of project bulks have already been received at site

- Civil works mostly completed; Construction resources at their peak

- Installed over 1200 equipments leading to a dramatic change in skylines of project site

- Sufficient site infrastructure mobilised to sustain equipment installation and fabrication works on fast track

Engineering is nearing completion with all drawings for concreting, structural steel and underground piping and over 90% of electrical and instrumentation released for construction. This phenomenal engineering progress achieved within a short span of 22 months reflects the success of a massive team effort that involved over 7,500 engineers, who worked from several interconnected locations across the world.

Procurement progress has been equally impressive. Procurement and contracting for equipments, tagged items and bulk materials is now complete. There is a barrage of equipment deliveries at site, with over 1,000 equipments, including several critical and long lead heavy equipments delivered during the quarter alone. With this, over 50% of all equipments / tagged items required for the project have already been received at site. Nearly all the bulk materials, including pipes and fittings for the project as well as substantial part of electrical and instrumentation bulks have also been delivered at site.

The construction activities have also peaked with aggregate volume of concrete poured at the project site crossing the 1.5 million cubic meter mark during the quarter. Most of the civil work is complete. This has enabled structural steel / pipe erection and equipment installation activities to progress rapidly as well. Over 20% of equipments are installed and over 40% of project scope for pipe laying and erection is complete. Underground piping is nearing close out. Nearly 75% of structural steel fabrication, 85% of tankage fabrication and over 60% of pipe fabrication work has also been completed.

Meanwhile, at the industry level, global refining fundamentals have strengthened further and promise exciting value creation opportunities for large and complex refiners. Keeping pace with strong economic growth, there is a robust growth in demand for transportation fuels worldwide, despite high crude oil prices. There is continuing shortage of global refining capacity since many announced refineries are either delayed or cancelled due to schedule or capital cost concerns. Available crude oils are getting sourer and heavier and limited additions to global conversion capacity have widened light to heavy differentials. In keeping with the global concern on climate change and with an endeavour to improve quality of life for its citizens, environmental regulations in every country are getting more and more stringent. There is also a global shortage of quality talent for execution as well as for operations and maintenance. Reliance has strategically and carefully nurtured its talent to gain tremendous competitive advantage in this area. In the above context, the RPL project, designed around large scale, higher complexity, lower capital costs and faster schedule, would have a significant competitive advantage from day one.

Commenting on the project progress Mr. Mukesh Ambani, Chairman of the Company said "I would like to compliment the entire RPL team on the remarkable progress made so far and preparedness for the tasks ahead. The team is fully geared up and motivated to commission the refinery ahead of its initial schedule of December 2008. RPL is poised to create a new world record for project implementation in the refining sector".

Deutsche Bank - Reliance Petroleum

Deutsche Bank has a BUY on Reliance Petroleum and has recommended a BUY on the stock with 12-month target price of Rs 140.

They have valued RPL using a PE of 10.6x on FY09e equivalent earnings, assuming a 10% premium to the DB regional peer group average P/E. The FY09e equivalent EPS is based on the FY10e EPS (INR14.9/shr) discounted at 12%. Their target multiple assumes a 10% premium to regional peers to factor in higher complexity, and ability to produce ultra-low sulphur fuels. RPL also looks attractive on its FY10e FCF yield of 15%. Future valuation drivers include: i) re-rating in refining EV/capacity on the same lines as India’s cement stocks over the last four years; ii) fuel-switching benefits; iii) potential for higher volumes based on RIL’s track record of sweating its assets.