21 June 2021 Update | Sector: Oil & Gas
Reliance Industries
BSE SENSEX S&P CNX 52,574 15,747 CMP: INR2,238 TP: INR2,430 (+9%) Buy Motilal Oswal values your support Growing dominance of consumer businesses in the Asiamoney Brokers Poll 2021 for India Research, Sales, FY21 Annual Report analysis Corporate Access and Trading team. We request your ballot. FY21 has been a landmark year for Reliance Industries Ltd (RIL). The new-age Retail and Digital businesses flourished despite the COVID-led disruption, led by the emergence of RIL’s disruptive and aggressive growth philosophy. As a result, this cushioned the impact on the overall business and provided the much needed capital raise and deleveraging. RIL’s Fossil Fuels business struggled with a 37% decline in EBITDA in FY21. However, the Retail biz, partially supported by the Online Retail and Digital businesses, came in much stronger, arresting the decline to just 9% on a consolidated basis to INR807b. RIL managed to raise INR2.6t in capital through an asset monetization and rights issue. We delve into the company’s Annual Report, highlighting the key initiatives and business outlooks for the various segments. Digital Services At a time when most businesses were adversely impacted on account of COVID-19, RJio’s revenue/EBITDA grew 29%/43% in FY21, led by a strong 38m subscriber additions and 6% ARPU improvement. The exponential data growth seen in the past year further vindicated the product power and the importance of telecom services/players in a consolidated market. Stock Info The company turned FCF-positive, led by improving EBITDA and reducing capex Bloomberg RIL IN intensity, and ROEs edged up further. Nevertheless, the ROEs remain in single Equity Shares (m) 6,339 digits, underscoring weak monetization and the need for tariff hikes. M.Cap.(INRb)/(USDb) 14575.6 / 197.8 52-Week Range (INR) 2369 / 1606 Reliance Retail 1, 6, 12 Rel. Per (%) 8/0/-24 Reliance Retail Ventures Ltd (RRVL)’s standalone revenue/EBITDA grew 1%/- 12M Avg Val (INR M) 31097 12%, while the core revenue/EBITDA is estimated to have seen 19%/21% Free float (%) 50.9 decline due to the COVID impact. Financials Snapshot (INR b) At a time when most retailers were rationalizing operations, Reliance Retail Y/E March 2021 2022E 2023E added 1,456 new stores and made aggressive inroads into the Online business. Net Sales 4,669 6,078 6,730 It achieved 10% revenue contribution in 4QFY21, presenting huge potential. EBITDA 807 1,116 1,343 RRVL’s standalone debt increased to INR147b (v/s INR47b in FY20) and FCF Net Profit 437 602 757 turned negative to -INR76 (v/s INR98b in FY20). ROEs declined to 21% (v/s 36% Adj. EPS (INR) 67.7 93.4 117.5 EPS Gr. (%) 1.9 37.9 25.8 in FY20), but we expect a rebound as we come out of the COVID- lockdowns. BV/Sh. (INR) 1,086 1,171 1,278 O2C segment | Following other businesses’ trajectories Ratios Net D:E 0.3 0.3 0.2 RIL restructured its Refining and Petrochemical segments into the O2C RoE (%) 7.6 8.3 9.6 segment to attract strategic partnerships. As we had highlighted earlier, an RoCE (%) 8.2 8.1 9.2 incremental conversion of 10% in Oil-to-Chemicals (O2C) could add ~6%/3% to Payout (%) 8.4 8.9 9.2 stand/conso EBITDA. Valuations Unprecedented demand destruction of 9.5mnbopd in 2020 led to weaker P/E (x) 32.9 23.8 18.9 P/BV (x) 2.0 1.9 1.7 margins in refined products. Petrol and diesel cracks more than halved in FY21, EV/EBITDA(x) 20.3 14.7 11.9 while ATF declined to USD1.2/bbl in FY21 (from USD12.6/bbl in FY20). EV/Sales (x) 3.5 2.7 2.4 However, global PP & PE demand rose 3%, and supply constraints resulted in Div. Yield (%) 0.3 0.4 0.5 PP-naphtha/PE-naphtha margins expanding 22%/31%.
Swarnendu Bhushan- Research Analyst ([email protected]) Aliasgar Shakir - Research Analyst ([email protected]) Sarfraz Bhimani - Research Analyst ([email protected]) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. Reliance Industries
Shareholding pattern (%) Capital raise of INR2.6t | Strengthening the balance sheet As On Mar-21 Dec-20 Mar-20 Total capex stood at INR797b, primarily toward the Digital, Retail, and O2C Promoter 49.1 49.1 48.9 businesses, and also included the forex impact. DII 12.5 12.7 13.6 FII 27.8 27.3 25.9 As a result of an INR2.6t capital raise (INR1.52t from Jio Platforms, INR0.47t Others 10.6 10.9 11.6 from Reliance retail, INR0.53t via rights issue and INR0.076t from RIL-BP JV), Our FII Includes depository receipts estimate suggests standalone net debt declined 47% YoY to INR935b in FY21
Stock performance (one-year) and consol net debt fell 71% YoY to INR539b. Although, at the end of FY21, as per our calculation – gross debt for standalone was at INR1,938b and consol. was at INR2,238b. Valuation and view RJIO: RJio plans to accelerate growth through JioPhone, Enterprise Data, and other digital avenues via the recent spate of launches, coupled with new digital app offerings. Thus, we assign an EV/EBITDA multiple of 20x on FY23 EBITDA, with TP of INR847/share (for its 66% stake). The higher multiple captures the digital revenue opportunity, potential tariff hikes, and opportunity in the Feature Phone market (not built into our estimates). Retail: We value Reliance Retail’s core business at 35x FY23E EV/EBITDA and assign 4x to Connectivity, arriving at TP of INR755 – after excluding the recent 10% stake sale. Our premium valuation multiples capture the accelerated growth in new store openings, digital commerce, and the new JioMart platform. O2C: Vaccination drives appear to be gaining momentum the world over, with large economies such as the US and India inoculating more than 4m daily. This is expected to soon revive demand for transportation fuels, thus boosting GRMs. Since the company has stopped disclosing GRMs separately, we build in EBITDA of USD107/134/mt for FY22/FY23E (vis-à-vis USD73–84/mt reported over 3Q– 4QFY21) – on the back of improvement in refining and petchem margins. Using SOTP, we value the O2C business at FY23E EV/EBITDA of 7.5x, arriving at a valuation of INR764/share for the standalone business, and add INR68 for the E&P assets. We ascribe an equity valuation of a) INR847/share to RJio on FY23E 20x EV/EBITDA and b) INR755/share to Reliance Retail on FY23E 35x EV/EBITDA, factoring in the recent stake sale. Reiterate Buy, with TP of INR2,430/share.
Exhibit 1: RIL – SoTP: Maintain Buy at TP of INR2,430 7.5x FY23 EBITDA Equity value Standalone
4 847
755 2,430 68 764
O2C E&P Reliance Retail RJio Net debt / Target price (cash) INR/share Source: MOFSL
21 June 2021 2 Reliance Industries
Consolidated financials | Capital raise of INR2.6t Segmental business-wise split
Consolidated revenues fell 18.3% YoY to INR5,392b, weighed by (a) lower volumes and realization across key products in the O2C segment and (b) Retail being impacted by store closures and operational disruptions. The revenue decline was partially offset by growth in the Digital biz. Standalone revenue was down 24% to INR2,789b in FY21, with contribution reducing from 55% to 52% as O2C revenue declined 29% to INR3,200b. Retail revenue declined 6% to INR1,538b despite the sharper impact seen in Discretionary categories such as Fashion and Apparel and Consumer Durables, which faced store closures. However, the launch of the online portal JioMart – which reported sales in Grocery and other categories – cushioned the impact. Digital revenue was up 30% to INR903b. The combined revenue contribution from Digital and Retail increased from 35% to 45%. Consolidated EBITDA was down 4.6% YoY to INR976b as O2C was impacted by pandemic-related demand destruction. However, this was cushioned by Retail EBITDA declining just 2% to INR98b. Digital EBITDA was up 46% to INR340b. The combined EBITDA contribution from Digital and Retail increased from 32% to 45%.
Rise in networth The consolidated networth rose to INR6.9t (from INR4.4t), primarily led by retained earnings, a rights issue, and equity issuances by subsidiaries. The standalone networth rose to INR4.7t in FY21 (from INR3.9t), primarily led by retained earnings as well as a rights issue.
Exhibit 2: Movement in consol networth Consolidated (INRb) FY20 FY21 Equity share cap 63 64 Other equity 4,428 6,937 Non-controlling interest 122 993 Networth (exluding non controlling interest) 4,491 7,001
Retained earnings 491 Other comprehensive income (forex translation reserve) 338 Dividend (39) Rights issue 529 ESOP 7 Issue of equity by subsidiaries 1,174 Others 7
Source: Company, MOFSL
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Exhibit 3: Movement in standalone networth Standalone (INRb) FY20 FY21 Equity share cap 63 64 Other equity 3,849 4,680 Net worth 3,912 4,745
Retained earnings 319 Other comprehensive income 26 Dividend (39) Loss on acquisition of RHUSA loan (332) Rights issue 529 Stock option 4 Gain from amalgamation of RHUSA & REGDL 324
Source: Company, MOFSL Movement in debt Total capex stood at INR797b in FY21, primarily toward the Retail, Digital, and O2C segments. Our estimate suggests standalone debt declined 47% YoY to INR935b in FY21 and consol debt fell 71% YoY to INR539b.
Exhibit 4: Gross debt (INR b) Exhibit 5: Net Debt (INR b) Gross debt (INR b) Consolidated Standalone Net debt (INR b) Consolidated Standalone 1,898 1,876 2,914 1,735 1,708 2,719 2,522 2,552 1,450 2,341 2,238 1,279 1,213 1,197 1,837 1,813 1,816 1,758 935 2,543 2,252 1,938 1,215 1,572 938 1,196 476 527 585 539 1,013 1,103 968 1,127 408 498 FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 1HFY18 1HFY19 1HFY20 1HFY21 1HFY18 1HFY19 1HFY20 1HFY21
Source: MOFSL, Company Source: MOFSL, Company
RIL Consolidated (INR b) FY16 FY17 FY18 FY19 FY20 FY21 Operating Cash Flow 381 496 715 423 981 262 Capex -466 -766 -730 -928 -756 -1035 FCFF -84 -271 -15 -504 225 -773 RJio (INR b) FY16 FY17 FY18 FY19 FY20 FY21 Operating Cash Flow -44 -34 36 67 166 326 Capex -176 -385 -358 -438 -508 -250 FCFF -220 -419 -322 -372 -342 76 Reliance Retail (INR b) FY16 FY17 FY18 FY19 FY20 FY21 Operating Cash Flow 11 22 5 17 165 6 Capex -4 -8 -48 -47 -67 -82 FCFF 6 14 -43 -30 98 -76 Standalone (INR b) 1HFY19 FY19 1HFY20 FY20 1HFY21 FY21 Debt 1,127 1,572 1,196 2,543 2,252 1,938 Cash 22 38 44 85 69 56 Current investments 520 596 653 700 732 947 Net Debt 585 938 498 1,758 1,450 935 Consolidated (INR b) 1HFY19 FY19 1HFY20 FY20 1HFY21 FY21 Debt 2341 1572 2522 2,914 2,552 2,238 Cash 41 37.68 128 309 159 174 Current investments 566 596 686 729 1,179 1,524 Net Debt 1,735 939 1,708 1,876 1,215 539
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RJio
Delivers strongly on profitability In FY21, RJio’s revenue grew 29% to INR699b, primarily led by subscriber additions to 426m in FY21 (from 388m in FY20), with ARPU increasing 6% YoY to INR138 – as the company realized the benefits of price hikes (taken in Dec’19) from FY21. RJio’s operating expenditure increased 20% YoY to INR390b on (a) a 30% rise in tower rental costs to INR220b (b) a 36% increase in spectrum/license costs to INR78b, and (c) over 12% growth in SG&A and other expenses. Employee cost reduced possibly due to 9% decline in employee expenses. EBITDA increased 43% to INR309b, with EBITDA margin expansion of 450bps to 44.2% in FY21. Given the aggressive growth, incremental margins were lower than the typical 60%+ in the Telecom business. Finance costs declined 42% YoY to INR38b as net debt declined to INR278b. RJio reported PAT growth of 116% YoY to INR120b, with margin expansion of 700bp to 17.2%.
Takeaways from MD&A: Wireline and digital solutions present major opportunity Rampant subscriber growth RJio became the first operator outside of China to achieve 400m subscribers in a single country. More than 250m people in the country have opted for RJio as the sole provider of broadband services. Since 2017, JioPhone has upgraded to +100m users. Penetration in rural areas has risen to 35%. JioPhone should continue to transition over 300m 2G feature phone users to 4G over the next 12–18 months. Jio and Google are working together to develop an entry-level affordable smartphone. Exponential growth in data consumption The higher acceptance of digital services is reflected in the 27% growth seen in RJio’s total data traffic to 16.6b GB in 4QFY21. RJio’s network carries over 5 exabytes of data per month, among the highest globally, with average per capita data usage of over 13GB. Video accounts for 70% of the data usage. Mobile data usage in India is expected to quadruple to over 35 exabytes per month by 2026, with 1.2b smartphone users. Spectrum portfolio It acquired the rights to use spectrum in all 22 circles across India; the total spectrum increased by 56% to 1,732MHz. It now has the highest amount of sub-GHz spectrum, with 2X10 MHz contiguous spectrum, in 18 of the 22 circles. It also has at least 2X10 MHz in the 1,800 MHz band and 40 MHz in the 2,300 MHz band in each of the 22 circles.
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JioFiber foray The FTTH opportunity would connect 50m homes across 1,600+ cities; currently connected to 2.5m homes. It integrated fiber connectivity and digital solutions to target 50m MSMB subscribers. It expanded the addressable market for JioFiber services with the launch of connectivity-only plans for first-time wired Internet users. Wireline penetration across homes stands at <10%. Fiber penetration is even lower, with fixed broadband largely running on a legacy copper-based infrastructure. Digital Solutions RJio launched and scaled multiple digital platforms such as JioMart, JioMeet, JioHaptik, and JioUPI during the year. 5G/IOT/AI Qualcomm and RJio successfully tested 5G solutions in India, achieving the 1 Gbps milestone on Jio 5G solutions. Reliance is working with Microsoft to enhance the adoption of leading technologies such as data analytics, artificial intelligence (AI), cognitive services, blockchain, the Internet of Things (IoT), and edge computing among small and medium enterprises (SMEs).
Exhibit 6: EBITDA/PAT margin up 450bp/1,300bp over FY18– 20 Exhibit 7: Subscribers/ARPU up 10% each YoY Revenue (INR b) EBITDA margin (%) Subscriber (m) ARPU (INR) PAT margin (%) 44% 40% 144 37% 143 33% 39% 137 26% 20% 130 11%
202 407 543 699 187 307 388 426
FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Source: MOFSL, Company Source: MOFSL, Company
RJio turns FCF-positive for the first time RJio’s operating cash flow has improved consistently since its full-scale operations from FY18, increasing by 8x over FY18–FY21 to reach INR326b in FY21. With moderation in capex, FCF turned positive at INR69b in FY21, led by the doubling of PAT to INR120b YoY, as EBITDA margins improved by 5ppts to 44.2% in FY21.
Exhibit 8: RJio turns FCF-positive in FY21, driven by materialization of price hikes taken in 4QFY20 and lower capex in FY21 RJio (INR b) FY16 FY17 FY18 FY19 FY20 FY21 Operating Cash Flow -44 -34 36 67 166 326 Capex -176 -385 -358 -438 -508 -257
FCFF -220 -419 -322 -372 -342 69 Source: MOFSL, Company
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Landmark capital raise RJio’s holding company, Reliance Jio Platforms Ltd, raised INR1,521b in a capital raise from global investors and tech giants. Post the capital raise, RJio is effectively a net debt company. Moreover, as a part of its strategic partnership with Google Inc, the company plans to launch low-cost smartphones targeting the low-income segments and acquire a non-bundled ARPU subscriber base from peers.
Exhibit 9: RJio raises INR1521b in FY21 from global investors and strategic tech giants… Investors INR b Facebook 436 Silverlake 101 Vista 114 General Atlantic 66 KKR 114 Mubadala 91 ADIA 57 L Catterton 19 TPF 45 PIF 114 Intel 19 Qualcomm 7 Google 337 Total capital raised 1,521 Source: MOFSL, Company
Exhibit 10: …thereby lowering its net debt post deals to INR155b
460 1,055 1,894 455 40 10 147 6 11 7 11 5 11 1 9 2 2 34 155 -446 Fiber debt Tower debt deal deal deal Qualcomm deal Qualcomm Catterton deal Debt reduction via Netdebt post deals Atlantic deal Debt reduction via L Capital reorganisation Capital Debt increase post FY20 increase post Debt fiber debt in 2QFY20 Debt reduction in 2HFY20 Debt reduction via Google Debt reduction via FB deal Debt reduction via PIF deal Debt reduction via General Debt reduction via TPF deal Debt reduction via KKR deal Debt reduction via Intel deal Debt reduction via via Silverlake reduction Debt Debt reduction via Vista via deal Vista reduction Debt Debt reduction via ADIA deal Debt reduction via Mubadala Net debt including tower and
Source: MOFSL, Company
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Exhibit 11: Schedule of network cost (INR b) Exhibit 12: Calculation of interest rate (INR b) Particulars FY20 FY21 Particulars FY20 FY21 Interest expense (excluding interest on lease Rent/Service Charges 77 88 59.7 32.3 liabilities) Power and Fuel 67 77 Interest capitalized 24.2 7.9 Repairs and Maintenance 11 17 Forex loss on debt 0.7 -7.6 Other network cost (includes 14 38 Interest accrued 1.7 0.3 Fibre usage charges) Total interest 86 33 Total 169 221 Average gross debt 934 424 Source: MOFSL, Company Interest rate (%) 9.2% 7.8% Actual interest paid as per cash flow statement 103 23 Additional interest capitalized 17 -9 Source: MOFSL, Company Balance sheet analysis Age of assets: RJio had a total tangible/intangible gross block of INR1,298b/INR673b as of Mar’20. Our workings indicate the average age of the tangible/intangible assets is 2.1/2.3 years, and they have a useful life of 17.4/11.4 years remaining. The amortization of intangible assets increased 62% in FY21, reducing the life of the asset from 20 years to 11 years. This is in line with the spectrum licensing period of 20 years, which commenced from FY10. It has since acquired spectrum periodically at auctions. RJio, in its balance sheet, mentioned that the remaining life of the spectrum/license range stands at 1–17 years (of the total 20 years of the licensing period). Our workings are based on the straight-line depreciation method, which may differ in the case of a different depreciation method, viz. WDV or accelerated depreciation rate. Other non-current assets increased by 46% to INR627b, largely owing to INR149b in capital advances and INR45b in incremental upfront fiber payments in FY21. RJio’s CWIP has declined continuously in both absolute terms and as a proportion of the total tangible/intangible gross block. After the transfer of RJio’s liabilities to RIL in the last fiscal, its gross debt declined significantly to INR470b in FY20 (from INR1,399b in FY19). In FY21, gross debt declined further to INR379b due to a further reduction in bank overdraft and commercial papers. Overall liabilities reduced significantly (from INR2.1t in FY19) due to the transfer of tower and fiber assets to InvIT, along with the transfer of liabilities to RIL as well as the stake sale. Exhibit 13: Schedule of other equity (INR b) Particulars FY20 FY21 Instruments classified as equity – OCPS 0.1% Non-Cumulative OCPS Series-I 1.3 1.3 9% Non-Cumulative OCPS Series-V 40.0 40.0 0.01% Non-Cumulative OCPS Series-VI 1,050.0 1,050.0 Total 1,091.3 1,091.3 Reserves & Surplus - Securities Premium Issue of shares 160.0 160.0 Balance as on end of year 160.0 160.0 Retained earnings As per last BS -47.3 8.3 Profit of year 55.6 120.2 Others -0.1 0.0 Balance as on end of year 8.3 128.5 Total other equity 1,259.6 1,379.7
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Exhibit 14: Schedule of other non-current/current assets (INR b) Particulars FY20 FY21 Capital Advances (non-current) 3.1 152.2 Security deposits (non-current) 24.7 22.4 Advance income tax (non-current) 11.9 13.2 Balance with GST authorities (current & non-current) 177.7 174.5 Upfront fibre payment (current & non-current) 164.4 209.4 Advances to vendors (current) 21.0 19.8 Others (current & non-current) 25.6 35.4 Total 428 627 Total assets 2,417 2,501 % of total assets 18% 25% Source: MOFSL, Company Exhibit 15: Age of assets (INR b) Particulars FY21 Age of tangible assets Depreciation (A) 66 Accumulated depreciation (B) 147 Age of tangible assets (C = B/A) (years) 2.2 Gross tangible assets (D) 1,298 Remaining useful life of tangible assets (E = D/A) (years) 17.4 Age of intangible assets Amortization (F) 49 Accumulated amortization (G) 113 Age of intangible assets (H = G/F) (years) 2.3 Gross intangible assets (I) 673 Remaining useful life of intangible assets (E = D/A) (years) 11.4 Source: MOFSL, Company Exhibit 16: CWIP/Intangible assets under development as % of tangible/intangible gross block (INR b) Particulars FY20 FY21 CWIP 212 169 Tangible gross block 1,109 1,298 % of tangible gross block 19% 13% Intangible assets under development 1 9 Intangible gross block 669 673 % of intangible gross block 0% 1% Source: MOFSL, Company Exhibit 17: RJio’s gross debt calculation (INR b) Particulars FY20 FY21 Deferred spectrum liability 188.4 188.4 Secured non-convertible debentures - - Unsecured non-convertible debentures - - Unsecured term loan - 4.2 Loan from related parties - - Creditors for Capital Expenditure 43.6 75.4 Derivative liabilities 5.5 3.3 Bank overdraft and commercial paper 232.4 107.8 Total 470 379 Source: MOFSL, Company
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Cash flow analysis In FY21, at a time when most businesses were adversely impacted by COVID, RJio’s operating cash flow increased to INR326b (from INR166b in FY20), led by strong revenue growth. FY21 capex stood at INR261b. Given the strong 43% improvement in EBITDA and peaking of capex, RJio’s FCF post-interest finally turned positive at INR45b (v/s -INR445b in FY20). Subsequently, FCF/sales normalized to 6%. However, with the significant investment at the recent spectrum auction, capex should increase in FY22E. The CFO-to-EBITDA ratio continues to improve to 105% in FY21 (v/s 77% in FY20), led by limited working capital woes as it is a prepaid business. Similarly, the accrual ratio declined to -9% in FY21 from -7% in FY20, implying an improvement in the quality of earnings – as cash earnings were higher than accrual earnings. This is particularly attributable to high non-cash expense and the prepaid nature of the business, which limits working capital investments.
Exhibit 18: Conversion of sales to free cash flow Particulars FY18 FY19 FY20 FY21 CFO 35.7 66.6 165.8 326.0 EBITDA 67.3 151.0 215.7 309.1 CFO/EBITDA 53% 44% 77% 105% Source: MOFSL, Company Exhibit 19: Conversion of sales to free cash flow Particulars FY18 FY19 FY20 FY21 FCF post interest (INR b) -407 -463 -446 45 Revenue (INR b) 202 407 543 699 FCF post interest/sales (%) -202% -114% -82% 6% Source: MOFSL, Company Exhibit 20: FCF/sales improving annually Exhibit 21: Quality of earnings improving
FCF post interest/sales (%) Accrual ratio (%)
6% FY18 FY19 FY20 FY21
FY18 FY19 FY20 FY21 -2% -2%
-82% -114% -7% -202% -9% Source: MOFSL, Company Source: MOFSL, Company
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Exhibit 22: CFO/EBITDA suggests healthy earnings
CFO/EBITDA
105%
77% 53% 44%
FY18 FY19 FY20 FY21
Source: MOFSL, Company
Cost capitalization Unlike previous years, capitalized capex came in higher than cash capex in the cash flow statement in FY21, indicating a portion of the operating cost could be capitalized. In FY22, the cash capex is higher than the capitalized capex, indicating the company may have largely completed the CWIP projects.
RJio’s capex, as mentioned in the cash flow statement, declined to INR261b in FY21. Against this, capex calculated from the change in gross block and CWIP/intangible assets under development stood at INR150b. Including the change in creditors for capital expenditure of INR32b, the total capitalized capex stood at INR118b, against cash capex of INR518b, as per the cash flow statement. Thus, unlike previous years, higher capitalized capex v/s cash capex indicated the capitalization of operating expenditure in FY21; in the current fiscal, cash capex is higher v/s capitalized capex.
Exhibit 23: Cost capitalization calculation Particulars FY20 FY21 Cash capex - purchase of PP&E -518 -261 Capital WIP 212 169 Intangible assets under development 1 1 Total 213 170 Change -134 -43 Change in gross block 368 192 Total Capitalised Capex 234 150 Difference between cash capex vs capitalised capex -283 -112 Creditors for Capital Expenditure (Non-Current) 9 8 Creditors for Capital Expenditure (Current) 35 68 Total 44 75 Change -370 32
Estimated opex capitalised 86 -143
Return ratio analysis RoE/RoCE/RoIC increased by 140–170bp to 6.8–7.6% in FY21. While returns have improved consistently since the launch of operations, they remain in the single digits. This increase is largely ascribed to improvement in profitability. The net margin improved 700bp in FY21 and ~14pp since FY18 on better EBITDA margins.
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Despite RJio being the market leader, its return ratios were low. This highlights the high capital intensity in the Telecom business and the need for price hikes to drive sustainable return ratios.
Exhibit 24: Return ratios continuously improving
RoE (%) RoCE (%) RoIC (%) 7.6% 6.2% 6.8% 5.3% 6.9% 4.1% 3.5% 5.2% 2.1%
2.7% 0.8% 0.9% FY18 FY19 FY20 FY21
Source: MOFSL, Company
Exhibit 25: DuPont Analysis for RoE (INR b) Du Pont analysis (amount in INRb) FY18 FY19 FY20 FY21 Net Profit 7 30 56 120 Revenue 202 407 543 699 Net profit margin (%) 3.6% 7.3% 10.2% 17.2% Revenue 202 407 543 699 Total Assets 2,537 1,958 2,417 2,376 Average total assets 2,273 2,248 2,187 2,397 Assets turnover (x) 0.09 0.18 0.25 0.29 Total debt 1,438 1,399 470 300 Total equity 1,029 404 1,710 1,830 Average equity 869 717 1,057 1,770 Average total assets 2,273 2,248 2,187 2,397 Financial leverage (x) 2.62 3.14 2.07 1.35 RoE as per du pont analysis (%) 0.8% 4.1% 5.3% 6.8% Source: Company, MOFSL
Leverage ratios Net debt/EBITDA declined to 0.9x from 1.7x in FY20 and the peak of 21.1x in FY18. Net debt/equity was at just 0.2x, down from 1.4x in FY18. This was due to the transfer of (a) tower and fiber assets to InvIT and (b) liabilities to RIL. The interest coverage ratio improved to 5x (v/s 2.1x in FY20) as EBIT increased significantly by 37% v/s a sharp 42% drop in interest cost due to the deleveraging exercise.
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Exhibit 26: Leverage reduces significantly over FY18–21 Exhibit 27: Interest coverage ratio improves Net debt (INR b) Net debt/EBITDA (x) Net debt/equity (x) Interest coverage ratio (x) 5.0 1,421 1,382 21.1
9.2 2.1 2.1 1.5 3.4 370 1.4 1.7 279 0.9 0.2 0.2
FY18 FY19 FY20 FY18 FY19 FY20 FY21 Source: MOFSL, Company Source: MOFSL, Company
Exhibit 28: Contingent liabilities/commitments reduce as % of PAT (INR b) Particulars FY18 FY19 FY20 FY21 Contingent liabilities Claims/disputed liabilities against the Company not acknowledged as debts 5 12 22 28 Corporate Guarantees 0 0 0 0 Guarantee issued by Banks on behalf of the Company 29 45 49 56 Commitments Estimated amount of contracts remaining to be executed on Capital account not provided fo 345 114 49 488 Total 378 171 121 573 Reported PAT 7 30 56 120 as % of PAT 5231% 577% 217% 477%
Exhibit 29: Key related-party transactions Reliance Jio Reliance Particulars Industries Platforms Retail Issue of preference shares - - Transfer of liabilities 85 Loan repaid - Revenue received in advance 741
Commission on customer acquisition and recharge 8 Source: Company Exhibit 30: Valuation based on SOTP Particulars (INRb) EBITDA 436 EV/EBITDA (x) 20 EV 8,926 Debt 850 Equity Value 8,076 Value Per Share 1,274 Stake 66.5% RIL stake in Rjio 847
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Reliance Retail
Strong footprint expansion across categories RRVL’s standalone net /consolidated revenues were largely in-line (up 1% YoY / down 3%). On the other hand, core revenues (excluding Connectivity and Petro Retail) declined 19%, impacted by the frequent COVID-led lockdowns. 1,456 new stores were added in FY21, taking the count to 12,711 totally, primarily in the Grocery and Fashion & Lifestyle categories. During the year, the company posted 18% retail area expansion to 33.8m sq. ft. – at a time when most competitors in retailing had curbed their expansion plans.
Core EBITDA margin on rising trajectory RRVL’s standalone EBITDA declined 12% YoY to INR80.8b, while consolidated EBITDA stood flat at INR98b (+1% YoY). The EBITDA margin (blended) improved 30bp YoY to 6.9%. The core EBITDA margin was estimated at 9.1% (-20bp YoY) in FY21 and continued to improve by 4.8ppts. The consistent improvement may be attributable to (a) strong operating leverage and rising scale of business, (b) a strong bargaining power and the ability to procure goods at sharp prices, (c) its focus on increasing the share of private label products across the Staples, Foods, and Fashion segments, (d) the Ind-AS 116 accounting change since FY20 leading to the exclusion of rental expenses, (e) reduced opex and cost savings during the pandemic, and (f) the growing scale of the new digital platform.
Cash flows and return profile impacted by pandemic Debt increased significantly to INR147b in FY21 (INR47b in FY20), toward short- term working capital loans. This, we understand, would be to support the cash requirement during the pandemic and support capex and inventory toward rapid store expansions. Cash flow from operations declined significantly to INR6b in FY21 (INR165b in FY20), as retail stores remained closed amid restrictions. On the other hand, capex stood at INR82b (INR67b in FY20), leading to FCF of –INR76b (INR98b in FY20), as the company added stores in FY21. Lower sales and profitability in turn led to decline in RoE/RoCE to 21%/16% in FY21 (RoE/RoCE of 36%/26% in FY20).
Takeaways from MD&A: Physical reach complimenting digital foray Massive opportunity and industry size: Organized Retail would post a 19% CAGR to USD231b (11% penetration; est. to grow to 18%) by FY25. The overall Retail market, estimated at USD822b in FY20, is expected to post a CAGR of 10% over FY20–25 to reach USD1.3t by FY25. Unorganized Retail is poised to grow to over USD1t over this period.
21 June 2021 14 Reliance Industries
Rapidly growing reach: Reliance Retail opened 1,456 new retail outlets in the year, taking the total store count to 12,700, with an operating area spanning over 33.8m sq. ft. Over half the expansion was carried out in smaller tier towns. It operates more than two-thirds of its stores in tier II and smaller tier towns.
Ramping up digital scale: All the Reliance Digital, Fashion & Lifestyle, and Grocery stores are omni- enabled. The Reliance Digital delivery service has a presence across 19,000+ pin codes, with over >95% orders delivered within a six-hour window. By the end of FY21, the Digital & Merchant Partnerships business accounted for 10% of revenue, which stood at near zero in the previous year. Over half the orders on digital platforms were from Tier II and smaller tier towns. It launched India’s largest hyperlocal platform, JioMart, in 200+ cities. It activated the reliancedigital.in website for the Electronics category, scaled up AJIO in Fashion & Lifestyle, and created a range of mono-brand sites for premium and luxury brands. The Ajio.com website witnessed a 3x increase in business.
New commerce/merchant tie-ups: It is expanding its new commerce footprint, from 33 cities at present, via investments in supply chain and technology. It has new commerce partnerships with over a million merchants across consumption baskets. Tier II and Tier III cities contribute to over half the orders.
Inorganic growth and capital raise: It acquired Netmeds, Urban Ladder, and Zivame. It also entered into an agreement to acquire the Retail & Wholesale and Logistics & Warehousing businesses of Future Group at a cost of INR247b. Reliance Retail raised INR473b for a 10.09% stake from marquee global investors.
Other takeaways: It reported a loyal customer base of 156m (+25%) in FY21. The business was impacted by restrictions, with 80% of stores operational and lower footfall (at 65% of last year). Segment-wise: Consumer Electronics: It is the largest consumer electronics retailer with an extensive network of 8,600+ stores across 7,000+ towns. Fashion & Lifestyle: It is the largest fashion retailer in India, with 2,850+ stores across 850+ cities. Grocery: It holds >50% share of fruits and veggies in the modern trade channel. Pharmacy: It forayed into pharmacy retail in FY21, with 114 pharmacies operationalized as well as via the acquisition of the digital platform Netmeds.com.
21 June 2021 15 Reliance Industries
Exhibit 31: Reliance Ventures (holding company structure)
Source: MOFSL, Company Exhibit 32: Reliance Retail – largest subsidiary and major contributor to holding company Reliance Retail (as % of Reliance Reliance Retail Ventures Reliance Retail Ltd Ventures) (INR b) FY20 FY21 FY20 FY21 FY20 FY21 Sales 1,629 1,576 1,202 NA 74% NM EBITDA 97 97.93 90 NA 107% NM
*Reliance Retail’s financials as disclosed in quarterly investor presentation
Source: Company, MOFSL Exhibit 33: Net revenue up 1% in FY21 as Petro Retail biz Exhibit 34: ...and core revenue down 36% in FY21 despite carved out… COVID impact, with flattish EBITDAM
Net Revenue (INR b) YoY growth (%) Core Revenue (INR b) Core EBITDA margin (%)
98% 1,304 1,317 95% 9.3% 9.1% 6.0% 7.0% 161 183 4.7% 4.3% 3.9% 44% 27% 28% 14% 1% 264 515 1,019 166 190 273 437 735 928 748 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 35: EBITDA declined by 12% Exhibit 36: Core EBITDA down 21% YoY on pandemic woes
EBITDA (INR b) EBITDA margin (%) Core EBITDA (INR b) Core EBITDA margin (%)
7.0% 9.3% 9.1% 5.8% 6.1% 6.0% 7.0% 4.9% 5.0% 4.7% 4.3% 3.9% 4.4% 4.6%
8 9 12 24 59 91 81 8 8 11 26 51 86 68 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, MOFSL Source: Company, MOFSL
21 June 2021 16 Reliance Industries
Exhibit 37: PAT down 17% YoY, with margins at 3%
Adj. Net profit Adj. Net margin (%) 4% 3% 3% 2% 2% 2% 2%
3 3 5 12 31 55 46
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Reliance Retail – capex intensity remains strong Reliance Retail’s operating cash flow fell significantly to INR6b (-96% YoY) due to revenue coming in flat YoY. However, EBITDA/PAT declined 12%/17% YoY to INR81b/INR46b as retail stores saw limited footfall and business due to lockdown-led restrictions across the country. Moreover, it reported net 927 store additions in FY21 and is focusing on aggressively expanding JioMart’s offerings, leading to a 22% increase in capex to INR82b. Reliance Retail consistently posted a 79% CAGR in capex over FY16– 21. Its FCF, thus, stood at negative INR76b in FY21 (positive INR98b in FY20).
Exhibit 38: Reliance Retail turns FCF-negative due to national lockdown Reliance Retail (INR b) FY16 FY17 FY18 FY19 FY20 FY21 Operating Cash Flow 11 22 5 17 165 6 Capex -4 -8 -48 -47 -67 -82 FCFF 6 14 -43 -30 98 -76 Source: MOFSL, Company Exhibit 39: Reliance Retail raises INR473b, diluting 10.5% stake to global investors
Fund (INR b) Pre-money equity valuation Enterprise Value Amount infused Stake Offered (as disclosed) Silver Lake Holdings 4,210 4,310 75 1.7% KKR 4,210 4,310 55.5 1.2% General Atlantic 4,285 4,385 36.8 0.8% Silver Lake Holdings & Co Investors 4,285 4,385 18.8 0.4% Mubadala 4,285 4,385 62.5 1.4% GIC 4,285 4,385 55.1 1.2% TPG 4,285 4,385 18.4 0.4% ADIA 4,285 4,385 55.1 1.2% Saudi PIF 4,587 4,687 95.6 2.0% Total capital raised 472.7 10.1%
Source: MOFSL, Company Exhibit 40: Core segment revenue continues to scale higher
FY15 FY16 FY17 FY18 FY19 FY20 FY21
446 377 392 346 287 234 227 139 136 95 108 115 110 86 61 72 84 42 28 42 51
Food & Grocery Consumer Electronics Fashion and Lifestyle
Source: Company, MOFSL
21 June 2021 17 Reliance Industries
Exhibit 41: Food and Grocery segment up 9% YoY Exhibit 42: Fashion & Lifestyle segment down 38% in FY21 Net Revenue (INR b) YoY growth (%) Net Revenue (INR b) YoY growth (%)
49% 53% 42% 69% 20% 24% 48% 86 25% 28% 19% -19% 9% -38% 95 -9% 108 139 234 346 28 42 51 72 110 136 377 84 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, MOFSL Source: Company, MOFSL
Exhibit 43: Consumer Electronics up 36% YoY Exhibit 44: Reliance Retail store split in FY21 Outside Net Revenue (INR b) YoY growth (%) Grocery, India, 77 1103
88% 98% 73% 287 38% 44% Fashion & 14% Lifestyle, 2850 -36% Consumer 42 61 115 227 392 446 Electronics, 8681 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Source: Company, MOFSL Source: Company, MOFSL
Rapid acceleration of store expansion strategy Reliance Retail’s total store count stood at 12,711 in FY21, implying an increase of net 927 stores, of which Jio Digital stores comprised over 8,200 stores. Thus, the strength of its core stores stood at 4,511 – net increase of 827 new core stores in FY21 v/s 3,684 stores last year. a. Consumer Electronics – It opened 80 new stores in FY21, taking the total store count to 8681 stores; Reliance Digital’s e-commerce services are now available across 1,340 cities. b. Fashion and Lifestyle – It opened over 464 fashion and lifestyle stores (gross adds of over 600 stores) in FY21. c. Grocery – It opened net 306 new stores in FY21 (gross adds of over 600 stores). JioMart now has the widest footprint, across 200+ cities, and has emerged as the widest hyperlocal grocery delivery platform within a year of its launch.
Exhibit 45: Footprint and presence across categories Presence in towns FY21 No. of Stores Stores Share Footfalls WIP Stores and cities Consumer Electronics 8,600 68% 7000+ 230 188 Fashion & Lifestyle 2,850 22% 850+ 170 Grocery 1,147 9% Pharmacies 114 1%
Total 12,711 100% 7000+ 400
Warehousing & Distribution Centres 263 Source: MOFSL, Company
21 June 2021 18 Reliance Industries
Exhibit 46: Detailed breakup of other expenses Other Exp in INR b Other Exp as a % of revenue
Other Expenses FY20 FY21 FY20 FY21 Sales promotion and advertisement expenses 5.4 4.6 0.4% 0.4% Store running expenses 8.3 9.0 0.6% 0.7% Rent & Operating Lease Expenses 47.9 45.7 3.7% 3.5% Other Expenses 31.2 35.1 2.4% 2.7% Total 92.8 94.5 7.1% 7.2%
Source: Company, MOFSL
Exhibit 47: Finance costs down to INR6.1b in FY21… Exhibit 48: …at 7% of average gross debt Finance Cost FY20 FY21 Interest Expenses 8.7 6.9 Total Interest cost (INR b) Finance Cost (as % of gross debt) Gross Debt 88.4 97.9 Finance Cost (as % of gross debt) 17% 16% Cash Interest paid 8.5 6.1 Source: Company, MOFSL
6.1 8.7 6.9
FY19 FY20 FY21
Source: Company, MOFSL
Balance sheet analysis The company’s working capital has reduced considerably in the last five years, but increased to 27 days from 20 days in FY20 – as payables days reduced to 20 days (from 23 days in FY20) and receivable days increased to 12 days (from 10 days in FY20). Inventory increased by INR30b (8% YoY) in FY21 as the company increased its store count, largely driven by 19%/38% YoY footprint growth in Fashion & Lifestyle / Grocery stores. However, overall inventory days stood flat at 35 days in FY21 (34 days in FY20). Receivables increased 142% YoY to INR60b. Thus, overall net working capital days increased to 27 days (v/s 20 days in FY20).
Exhibit 49: Net payables down by INR29b Trade Payables (INR b) FY20 FY21 Micro and Small Enterprises 0.3 4.0 Others 56.4 62.8 Total 56.8 66.8 Other payable (deposits) 6.8 6.2 Other payable (jewelry advances) 50.1 12.1 Total Payables 113.6 85.0 Net rise in Payables 28.7 -28.6 Source: MOFSL, Company
21 June 2021 19 Reliance Industries
Exhibit 50: Net working capital days down to 27 days Receivable days Inventory days Credit days Net Working Capital 88
67 50 64 57 50 46 38 35 34 35 27 24 22 20 23 20 10 12 12
FY16 FY17 FY18 FY19 FY20 FY21 Source: MOFSL, Company
Debt increases; investment in retail expansion remains strong Gross debt increased to INR147b in FY21 from INR48b in FY20, led by loans for working capital with maturity of less than 12 months. Of the total INR147b in current borrowings, INR2b matures before 30th Jun'21 and the remaining INR145b matures by 31st Mar’22. Net debt increased to INR138b in FY21. Net debt/EBITDA increased sharply to 1.7x (from 0.4x in FY20) – as EBITDA declined 12% in FY21 due to lockdown and debt increased significantly by INR100b. Net debt/equity also increased to 0.5x in FY21. Capex increased to INR82b in FY21 (v/s INR67b in FY20) as the company increased its store count by 927 stores during the year. Total CWIP and intangible assets under development stood at 48% of the total net block (v/s 52% in FY20). Exhibit 51: Gross debt up to INR147b Exhibit 52: Debt schedule Borrowings - Current (INR b) FY20 FY21 Gross debt Secured Working Capital Loan 13.0 2 Unsecured loans from related parties 0.7 145.45 147 Other Loans and Advances 129 From Banks 28.0 0 Commercial Paper 4.9 0 Creditors for Capital Expenditure 0.9 0.69 48 Total 47.5 148.1 34 Source: MOFSL, Company 7 0
FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company Exhibit 53: Capex up to INR82b
Capex (INR b)
82 67
48 47
5 4 4 8
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
21 June 2021 20 Reliance Industries
Exhibit 54: Leverage ratios increase in FY21 on account of rise in debt
Net Debt (INR b) Net Debt/EBIDTA (x) Net Debt/Equity (x) 1.7 1.5 1.2 0.7 0.6 0.5 0.3 0.4 0.1 -0.2 0.2 -0.9 6 28 89 38 138
-11 FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company
Exhibit 55: CWIP and intangibles at 48% of net block CWIP & Intangibles FY20 FY21 CWIP & Intangible assets under development 88.2 106.0 Net block (Tangible + Intangible + Goodwill) 170 220 As a % of net block 52% 48% Source: MOFSL, Company
Exhibit 56: Contingent liabilities and commitments Contingent liabilities & Commitments FY19 FY20 FY21 Outstanding guarantees to Banks & FI in respect of others 17.7 18.9 9.4 Guarantees to banks against credit facilities extended to third parties 0.3 0.1 0.2 Claims against the Company/ disputed liabilities not acknowledged as debts 0.2 0.1 0.2 Commintent of contracts remaining to be executed on capital account 2.8 0.8 0.1
Total Contingent liabilites and Commitments 21.1 20.0 9.9 Source: MOFSL, Company
Cash flow analysis – operating cash flow weakens due to COVID Reliance Retail’s accrual ratio stood at 17% in FY21, on account of a significant drop in cash flow from operations to INR6b (-96% YoY); reported PAT declined merely 18% YoY to INR44b. Investment in working capital increased to INR61b on account of a rise in account receivables/inventory by INR51b/INR30b YoY (attributable to an increased focus on grocery retailing via JioMart’s kirana stores). FCF stood at –INR76b, with FCF/sales declining to 6% and operating cash flow/sales at 0%. ‘Operating cash flow to EBITDA’ declined to 7% in FY21, and ‘cash interest paid’ stood at INR6b and ‘cash interest paid as a percentage of CFO’ at 120%.
21 June 2021 21 Reliance Industries
Exhibit 57: Accrual ratio up to 17% on lower cash flows (INR6b) due to pandemic woes Exhibit 58: Cash interest paid/CFO up to 102% in FY21
Accrual ratio (%) Cash Interest paid/CFO
102% 17% -11% 15% 8% 36% -25% 20% 11% 5% -79% 4%
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 59: FCFF/sales down to -6% Exhibit 60: Nil OCF/sales in FY21
FCFF FCFF/Sales OCF OCF/Sales 8% 13% 5% 3% 8% 98 6% 6 14 5 17 6 165 -76 -43 -3% 2% -30 -6% 1% 0% -8% 11 22
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 61: OCF/EBITDA at 7% in FY21
OCF/EBITDA 190% 180%
116%
21% 29% 7%
FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company
Cash capex stood at INR82b in FY21, whereas the total capitalized capex stood at INR152b (from a rise in PPE, CWIP, and intangible assets under development), implying an excess of INR70b, which has been capitalized. Post the adjustment of INR0.6b from the credit for capital expenditure, we estimate INR70b in operating expenses could have been capitalized in FY21.
21 June 2021 22 Reliance Industries
Exhibit 62: Capex capitalization Particulars (INR b) FY19 FY20 FY21 Cash capex - purchase of PP&E 67 82 Capital WIP 25 88 106 Intangible assets under development 18 28 36 Total 43 116 224 Change 73 108 Gross Block 98 114 158 Change in gross block 17 43 Total Capitalised Capex 90 152 Difference between cash capex vs capitalised capex 23 70 Creditors for Capital Expenditure (Current) 0.9 1.3 0.7 Change 0.5 -0.6 Estimated opex capitalised 22.1 70.1 Estimated opex capitalised (as % age of sales) 2% 5%
Source: MOFSL, Company
COVID impact on RoE Reliance Retail’s asset turnover ratio declined to 3.1x in FY21, which we believe would recover from FY22 as lockdown restrictions ease. Over the last five years (FY16–21), revenue growth was 7x, driven by strong sales across formats. Financial leverage increased to 2.0x in FY21 from 1.7x in FY16. The DuPont Analysis reflects rising net profit margins and a high asset turnover, which played a significant role in improving RoEs from 5% in FY16 to 36% in FY20 and 21% in FY21 (as net margins and sales fell in FY21).
Exhibit 63: Asset turnover ratio falls to 3.1x Exhibit 64: Financial leverage at 2.0x
Net sales Avg total assets Asset turnover (x) Avg equity Avg total assets Financial Leverage (x)
2.7 3.7 3.5 2.3 2.3 2.9 3.1 2.0 1.7 1.7 292 2.4 1,019 1,304 1.9 350 1,317 179 429 515 154 217 429 111 108 292 350 95 79 183 264 179 57 65 95 111
FY16 FY17 FY18 FY19 FY20 FY21 FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 65: DuPont Analysis for RoE DuPont Analysis (INR b) FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Net sales 127 161 183 264 515 1,019 1,304 1,317 Total assets 87 86 105 117 241 344 356 502 Avg total assets 86 95 111 179 292 350 429 Asset turnover (x) 1.9 1.9 2.4 2.9 3.5 3.7 3.1 Gross debt 2 17 7 0 34 129 48 147 Total equity 53 52 61 68 91 126 181 253 Avg equity 52 57 65 79 108 154 217 Avg total assets 86 95 111 179 292 350 429 Financial Leverage (x) 1.6 1.7 1.7 2.3 2.7 2.3 2.0 Net margin (%) 2% 2% 2% 2% 2% 3% 4% 3%
RoE 5% 5% 7% 16% 29% 36% 21% Source: MOFSL, Company
21 June 2021 23 Reliance Industries
Exhibit 66: Return ratios continue to improve, but impacted in FY21 RoIC RoE RoCE 40%
30%
20%
10%
0% FY16 FY17 FY18 FY19 FY20 FY21
Source: MOFSL, Company
Exhibit 67: Major Related Party Transactions (INR b) FY19 FY20 FY21 Revenue from Operations
Reliance Industries Limited 1.2 0.9 1.6 Reliance Jio Infocomm Limited 9.8 11.0 17.6 Reliance Corporate IT Park Limited 1.3 25.1 49.8 Other Income
Reliance Brands Limited 0.6 1.6 1.8 Purchases
Reliance Jio Infocomm Limited 454.8 581.2 743.3 General Expenses
Reliance Jio Infocomm Limited 0.2 0.3 4.7
Exhibit 68: Reliance Retail SOTP
Valuation EBITDA multiple EV (INR b) Core EBITDA 155 30 4,641 Petro and Connectivity 23 4 95.0 Total 4,736 Less Net Debt 100 Equity Value 4,636 No of Shares (in b) 6.4 Target Price 719
Source: Company, MOFSL
21 June 2021 24
Reliance Industries
O2C | Restructuring to aid strategic partnerships
Demand, supply, and outlook for O2C products Demand for refined products declined 8.7mnbopd in CY20, and refining runs were lower by 7.3mnbopd. The glut resulted in weaker margins, with petrol and diesel cracks more than halving YoY. ATF saw the sharpest decline, to USD1.2/bbl in FY21 from USD12.6/bbl in FY20. Domestic demand for petroleum products declined 9% to 195mmt in FY21. Demand for petrol and diesel in particular fell 6.7% and 12%, respectively. Global demand for ethylene grew 1.7% YoY in CY20, while operating rates fell from 90% to 86%. A total of 11mmtpa of new capacity was added. However, a liquidity crunch delayed the commissioning of the projects and stalled decisions on new investments. Global polymer (PE/PP/PVC) demand grew 2% to 230mmt in CY20. Primarily, China and India led demand growth of 3% for PP & PE in CY20. Global demand for PBR and SBR contracted 6% and 7%, respectively, in CY20. In the domestic market, PP grew 2% as demand from health & hygiene and packaging overshadowed the subdued demand from the Auto sector and other sectors in general. Domestic demand for PE also grew 7%, led primarily by e-commerce, FMCG, and liquid packaging. Polymer margins weakened in 1QCY20, but started improving from 2QCY20. Margins increased sharply in 2HFY21 on demand recovery and supply constraints caused by a severe winter in the US as well as supply chain constraints. PE-naphtha rose 31% YoY and PP-propylene increased 16% YoY. The PVC-EVC- naphtha margin also increased 26% YoY. The PBR and SBR margins rose 64% and 77%, respectively. Global demand for intermediates fell 6% in CY20. Demand for polyester was also down 6% due to lower demand from textile and apparel manufacturers. However, demand for PET, LAB, and non-woven staple fibers increased on account of COVID. Domestic demand for intermediates fell 14% due to the adverse impact of COVID on the Consumer industry. The PX-naphtha margin declined 41%, while PTA-PX was almost flat YoY. MEG- naphtha rose 8% YoY. Overall production meant for sale declined to 63.6mmt in FY21 (from 71mmt), primarily weighed by transportation fuels. Reliance BP Mobility Limited (RBML) plans to increase the number of retail outlets from 1,419 to 5,500 over the next five years.
21 June 2021 25
Reliance Industries
Exhibit 69: Production meant for sale: Polymer/Elastomer production flat YoY; PX/MEG hold the fort for intermediates and polymers (flat YoY); 10% YoY fall in total production primarily attributable to transportation fuels Particulars Products FY20 FY21 YoY change Transportation Fuels 43.3 37.6 -13%
Gasoil 26.3 24.9 -5% Gasoiline/Alkylate 12.1 10.5 -13% ATF 4.9 2.2 -55%
Polymers and Elastomers 6.2 6.2 0%
PP 2.9 2.9 0% PE 2.2 2.3 5% PVC 0.8 0.7 -13% Elastomers and Feedstock 0.3 0.3 0%
Intermediates and Polymers 10.1 10.0 -1%
PX 2.8 3.4 21% Benzene and Derivates 0.5 0.5 0% PTA 2.4 2.0 -17% MEG 1.2 1.3 8% Filament 1.2 1.0 -17% Staple 0.8 0.7 -13% PET 1.2 1.1 -8%
Others Fuels, Solids and Others 11.5 9.7 -16%
Total 71.0 63.6 -10% Source: Company, MOFSL
Exhibit 70: Polymer margins at multi-year highs in FY21… Southeast Asia Polymer Margins (USD/mt) FY20 FY21 YoY change 77% 64%
31% 26% 16% 727 718 584 512 462 390 444 405 166 193
HDPE-Naphtha PP-Propylene PVC-EDC-Naphtha PBR-BD SBR-BD-Styrene
Source: Company, MOFSL
Exhibit 71: …while margins of intermediates and polyester remain mixed on the back of end user demand Intermediates and Polyester Margins (USD/mt) FY20 FY21 YoY change
8% 1% -8% -8% -28% -41%
292 282 215 232 203 172 155 157 163 150 158 146
PX-Naphtha PTA-PX MEG-Naphtha POY-PTA & MEG PSF-PTA & MEG PET-PTA & MEG
Source: Company, MOFSL
21 June 2021 26 Reliance Industries
Upstream projects In Dec’20, the company successfully commissioned the production of India’s first ultra-deep water gas field – the R cluster in the KG basin. Production from satellite fields was also commenced from Apr’21. Coupled with the upcoming production from the MJ field, the company would account for 25% of India’s total gas production (i.e., ~30mmscmd) in 2023E. The first installation campaign for MJ field was commenced in 4QFY21 and the second and final installation is planned in 4QFY22. RIL sold its interest in the Marcellus JV in 4QFY21. Due to poor operational performance and reduced activity, the shale gas subsidiaries took a write-off of INR157b.
Performance to improve in FY22 During the year, the company formalized the integration of its Refining and Petrochemicals business in O2C; this, we believe, may result in value unlocking, as observed in the Retail and Digital segments. FY21 EBITDA was down 27% YoY to INR335b, impacted by lower product margins amid the global pandemic. On the other hand, reported PAT was up 3% YoY to INR319.4b (owing to tax write-backs during the year). The company utilized massive tax credit for the year on the back of provisioning due to pending O2C restructuring. Adj. PAT stood at INR273b (for exceptional gains related to its deal with BP for the Petro Retail business during the year). On an implied basis, EBITDA stood at USD69/mt in FY21 v/s USD100 in FY20 – due to the drastic impact on both refining and petchem margins in 1HFY21 amid the COVID disruption.
Exhibit 72: Standalone PAT lower in FY21, primarily due to Exhibit 73: Standalone biz to generate FCF of INR1,142b over COVID impact, but expect growth from FY22 FY22–23E EBITDA (INRb) PAT (INRb) INR bn Free Cash Flow 658 761 589
528 528 544 517 465
374 382 433
393
235 226 356 352
336 335
335 314
274
273 43
-223 FY16 FY17 FY18 FY19 FY20 FY21
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY22E FY23E
Source: Company, MOFSL Source: Company, MOFSL
21 June 2021 27
Reliance Industries
Reliance Industries – valuation and view RJIO: RJio plans to accelerate growth through JioPhone, Enterprise Data, and other digital avenues via the recent spate of launches, coupled with new digital app offerings. Thus, we assign an EV/EBITDA multiple of 20x on FY23 EBITDA, with TP of INR847/share (for its 66% stake). The higher multiple captures the digital revenue opportunity, potential tariff hikes, and opportunity in the Feature Phone market (not built into our estimates). Retail: We value Reliance Retail’s core business at 35x FY23E EV/EBITDA and assign 4x to Connectivity, arriving at TP of INR755 – after excluding the recent 10% stake sale. Our premium valuation multiples capture the accelerated growth in new store openings, digital commerce, and the new JioMart platform. O2C: RIL expects demand for PVC, PP, and Polyester to remain firm on account of strong downstream demand. Although, a) large cracker capacity additions globally (~12mmtpa each over 2020–21) and b) the supply glut amid higher exports from China are likely to threaten current multi-year high margins. Since the company reports a combined O2C EBITDA only, we build in EBITDA of USD107/mt / USD134/mt for FY22/FY23E (vis-à-vis USD73–84/mt reported over 3Q–4QFY21) – on the back of improved refining and petchem margins. While we may see contraction in petchem margins, SG GRM is reviving and currently stands at USD2/bbl in 1QFY22’TD (v/s USD1.8/bbl in 4QFY21). We reiterate our positive stance on the recovery of GRMs to the long-term average of USD5– 6/bbl – as various economies around the globe open up. Gas production of +18mmscmd is expected in FY22 (from the already commissioned R-cluster and Sat-cluster), while the MJ cluster would be commissioned in 3QFY23. RIL has successfully completed three rounds (two for KG D6 gas and one for CBM) and plans to announce the fourth round (for KG D6 gas) in May’21. The KG basin is expected to achieve peak production of ~30mmscmd over the next two years. Using SOTP, we value the O2C business at FY23E EV/EBITDA of 7.5x, arriving at a valuation of INR764/share for the standalone business, and add INR68 for the E&P assets. We ascribe an equity valuation of a) INR847/share to RJio on FY23E 20x EV/EBITDA and b) INR755/share to Reliance Retail on FY23E 35x EV/EBITDA, factoring in the recent stake sale. Reiterate Buy, with TP of INR2,430/share.
Exhibit 74: RIL – SoTP: Maintain Buy at TP of INR2,430 7.5x FY23 EBITDA Equity value Standalone
4 847
755 2,430 68 764
O2C E&P Reliance Retail RJio Net debt / Target price (cash) INR/share
Source: MOFSL
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Reliance Industries
RIL SA: Financials and valuations
Standalone - Income Statement (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E Total Income from Operations 2,331.6 2,420.3 2,900.4 3,716.2 3,369.5 2,456.7 3,360.4 3,447.2 Change (%) -29.1 3.8 19.8 28.1 -9.3 -27.1 36.8 2.6 EBITDA 393.5 432.6 517.4 588.5 528.3 335.0 527.5 657.9 Margin (%) 16.9 17.9 17.8 15.8 15.7 13.6 15.7 19.1 Depreciation 85.9 84.7 95.8 105.6 97.3 92.0 92.8 95.8 EBIT 307.6 347.9 421.6 483.0 431.0 243.0 434.7 562.1 Int. and Finance Charges 25.6 27.2 46.6 97.5 121.1 162.1 86.8 74.9 Other Income 78.2 87.1 82.2 88.2 135.7 148.2 128.4 134.7 PBT bef. EO Exp. 360.2 407.8 457.3 473.7 445.6 229.1 476.3 622.0 EO Items 0.0 0.0 0.0 0.0 -42.5 43.0 0.0 0.0 PBT after EO Exp. 360.2 407.8 457.3 473.7 403.2 272.1 476.3 622.0 Total Tax 86.3 93.5 121.1 122.0 94.1 -47.3 119.9 156.6 Tax Rate (%) 24.0 22.9 26.5 25.8 23.3 -17.4 25.2 25.2 Reported PAT 273.8 314.3 336.1 351.6 309.0 319.4 356.4 465.4 Adjusted PAT 274.2 314.3 336.1 351.6 335.1 273.1 356.4 465.4 Change (%) 20.7 14.6 7.0 4.6 -4.7 -18.5 30.5 30.6 Margin (%) 11.8 13.0 11.6 9.5 9.9 11.1 10.6 13.5
Standalone - Balance Sheet (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY22E Equity Share Capital 32.4 32.5 63.4 63.4 63.4 64.5 64.5 64.5 Total Reserves 2,507.6 2,850.6 3,083.1 3,989.8 3,848.8 4,680.4 4,983.3 5,379.0 Net Worth 2,540.0 2,883.1 3,146.5 4,053.2 3,912.2 4,744.8 5,047.8 5,443.4 Total Loans 923.2 1,013.0 968.4 1,572.0 1,973.3 1,646.1 1,247.6 1,247.6 Deferred Tax Liabilities 237.5 247.7 279.3 473.2 505.6 307.9 307.9 307.9 Capital Employed 3,700.7 4,143.8 4,394.1 6,098.3 6,391.0 6,698.8 6,603.3 6,998.9 Gross Block 2,622.3 2,584.5 3,158.6 3,286.4 4,416.6 4,512.2 4,716.6 4,866.6 Less: Accum. Deprn. 1,146.9 1,053.2 1,149.0 1,254.6 1,351.8 1,443.8 1,534.5 1,630.3 Net Fixed Assets 1,475.4 1,531.3 2,009.6 2,031.9 3,064.8 3,068.3 3,182.1 3,236.3 Capital WIP 1,109.1 1,341.9 994.8 1,115.6 279.7 328.4 321.7 371.7 Total Investments 1,572.5 1,924.5 2,252.2 3,316.8 4,918.2 3,472.9 3,472.9 3,472.9 Curr. Assets, Loans&Adv. 659.8 669.8 918.6 1,293.2 1,454.3 1,867.2 2,414.1 2,777.6 Inventory 280.3 340.2 395.7 441.4 388.0 374.4 449.5 461.1 Account Receivables 35.0 54.7 104.6 121.1 74.8 41.6 56.9 58.4 Cash and Bank Balance 68.9 17.5 27.3 37.7 84.9 55.7 277.8 514.7 Loans and Advances 275.6 257.3 391.0 693.0 906.6 1,395.5 1,629.9 1,743.4 Curr. Liability & Prov. 1,116.1 1,323.6 1,781.2 1,659.1 3,326.0 2,037.9 2,787.5 2,859.6 Account Payables 1,093.7 1,289.8 1,749.9 1,626.5 3,301.1 2,013.9 2,754.7 2,825.9 Provisions 22.4 33.9 31.2 32.7 24.8 24.0 32.8 33.7 Net Current Assets -456.3 -653.9 -862.6 -365.9 -1,871.6 -170.7 -373.4 -82.0 Appl. of Funds 3,700.7 4,143.8 4,394.1 6,098.3 6,391.0 6,698.8 6,603.3 6,998.9 E: MOFSL Estimates
21 June 2021 29 Reliance Industries
RIL SA: Financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Basic (INR) EPS 42.5 48.8 52.2 54.6 52.0 42.4 55.3 72.2 Cash EPS 55.9 61.9 67.0 70.9 67.1 56.6 69.7 87.1 BV/Share 412.8 468.6 511.4 658.8 635.8 771.2 820.4 884.7 Valuation (x) P/E 52.3 45.6 42.7 40.8 42.8 52.5 40.2 30.8 Cash P/E 39.8 35.9 33.2 31.4 33.2 39.3 31.9 25.5 P/BV 5.4 4.7 4.4 3.4 3.5 2.9 2.7 2.5 EV/Sales 6.5 6.3 5.3 4.3 4.8 6.5 4.6 4.4 EV/EBITDA 38.6 35.5 29.5 27.0 30.7 47.6 29.0 22.9 Dividend Yield (%) 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.5 FCF per share 36.5 35.1 58.0 6.7 84.3 -34.5 118.1 59.2 Return Ratios (%) RoE 11.7 11.6 11.1 9.8 8.4 6.3 7.3 8.9 RoCE 8.9 9.1 9.2 8.7 7.5 7.5 6.6 8.0 RoIC 21.1 29.6 31.3 26.1 24.1 14.4 12.1 16.3 Working Capital Ratios Fixed Asset Turnover (x) 0.9 0.9 0.9 1.1 0.8 0.5 0.7 0.7 Asset Turnover (x) 0.6 0.6 0.7 0.6 0.5 0.4 0.5 0.5 Inventory (Days) 44 51 50 43 42 56 49 49 Debtor (Days) 5 8 13 12 8 6 6 6 Creditor (Days) 171 195 220 160 358 299 299 299 Leverage Ratio (x) Current Ratio 0.6 0.5 0.5 0.8 0.4 0.9 0.9 1.0 Interest Cover Ratio 12.0 12.8 9.1 5.0 3.6 1.5 5.0 7.5 Net Debt/Equity 0.3 0.3 0.3 0.4 0.5 0.3 0.2 0.1
Standalone - Cash Flow Statement (INR B) (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E OP/(Loss) before Tax 360.2 407.8 457.3 473.7 403.2 272.1 476.3 622.0 Depreciation 85.9 84.7 95.8 105.6 97.3 92.0 92.8 95.8 Interest & Finance Charges 25.6 27.2 46.6 97.5 121.1 162.1 86.8 74.9 Direct Taxes Paid -81.3 -95.6 -86.2 -94.3 -52.5 -16.9 -119.9 -156.6 (Inc)/Dec in WC 149.5 195.3 205.3 -192.9 335.3 -320.1 424.8 -54.6 Others -105.4 -104.9 -98.8 -97.7 -128.9 -194.4 0.0 0.0 CF from Operations 434.5 514.5 620.0 291.9 775.3 -5.1 960.8 581.5 (Inc)/Dec in FA -199.2 -288.1 -246.3 -248.7 -231.8 -217.6 -200.0 -200.0 Free Cash Flow 235.2 226.4 373.8 43.2 543.5 -222.7 760.8 381.5 (Pur)/Sale of Investments -6,938.0 -6,494.1 -5,347.6 -127.5 -1,309.1 1,202.3 0.0 0.0 Others 6,725.0 6,232.8 5,002.8 -163.3 104.7 -242.2 0.0 0.0 CF from Investments -412.2 -549.5 -591.1 -539.5 -1,436.3 742.6 -200.0 -200.0 Inc/(Dec) in Debt 44.4 30.2 91.3 415.4 118.3 -180.8 -398.5 0.0 Interest Paid -43.8 -53.6 -72.7 -115.8 -144.7 -142.9 -86.8 -74.9 Dividend Paid -72.6 0.0 -39.2 -42.8 -45.8 -39.2 -53.5 -69.8 CF from Fin. Activity -69.0 -16.4 -19.1 258.0 708.1 -766.2 -538.8 -144.7 Inc/Dec of Cash -46.8 -51.4 9.8 10.4 47.2 -28.7 222.1 236.9 Opening Balance 115.7 68.9 17.5 27.3 37.7 84.4 55.7 277.8 Closing Balance 68.9 17.5 27.3 37.7 84.9 55.7 277.8 514.7 E: MOFSL Estimates
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RIL Consol.: Financials and valuations
Consolidated - Income Statement (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E Total Income from Operations 2,740 3,054 3,917 5,692 5,961 4,669 6,078 6,730 Change (%) -27.0 11.5 28.3 45.3 4.7 -21.7 30.2 10.7 EBITDA 417 462 642 842 883 807 1,116 1,343 Margin (%) 15.2 15.1 16.4 14.8 14.8 17.3 18.4 19.9 Depreciation 116 116 167 209 222 266 301 322 EBIT 301 345 475 632 660 542 815 1,021 Int. and Finance Charges 37 38 81 165 220 212 148 141 Other Income 123 93 89 84 139 163 192 200 PBT bef. EO Exp. 387 400 483 551 579 493 859 1,079 EO Items 0 0 0 0 -44 56 0 0 PBT after EO Exp. 387 400 483 551 535 549 859 1,079 Total Tax 89 102 133 154 137 17 202 257 Tax Rate (%) 22.9 25.5 27.6 27.9 25.7 3.1 23.6 23.8 Minority Interest 1 -1 -11 -1 1 41 55 65 Reported PAT 297 299 361 398 397 491 602 757 Adjusted PAT 297 299 361 398 429 437 602 757 Change (%) 26.2 0.5 20.7 10.4 7.6 1.9 37.9 25.8 Margin (%) 10.9 9.8 9.2 7.0 7.2 9.3 9.9 11.3
Consolidated - Balance Sheet (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY22E Equity Share Capital 29 30 59 59 63 64 64 64 Total Reserves 2,286 2,608 2,876 3,812 4,428 6,937 7,486 8,173 Net Worth 2,316 2,637 2,935 3,871 4,492 7,002 7,550 8,238 Minority Interest 34 29 35 83 122 993 993 993 Total Loans 1,947 1,837 1,816 2,719 2,914 2,238 2,238 2,238 Deferred Tax Liabilities 205 212 245 499 541 370 370 370 Capital Employed 4,501 4,715 5,032 7,173 8,069 10,602 11,150 11,838 Gross Block 3,312 3,564 5,775 5,868 7,450 7,802 9,235 10,026 Less: Accum. Deprn. 1,506 1,628 1,795 2,004 2,226 2,492 2,793 3,115 Net Fixed Assets 1,807 1,936 3,981 3,864 5,224 5,310 6,442 6,912 Goodwill on Consolidation 43 49 58 120 103 102 102 102 Capital WIP 2,287 3,248 1,870 1,795 1,091 1,260 677 385 Total Investments 840 856 855 2,403 2,768 3,648 3,648 3,648 Curr. Assets, Loans&Adv. 1,014 978 1,348 1,843 2,474 2,892 3,678 4,553 Inventory 465 490 608 676 739 817 1,063 1,177 Account Receivables 45 82 176 301 197 190 247 274 Cash and Bank Balance 110 30 43 111 309 174 141 635 Loans and Advances 394 377 522 755 1,229 1,711 2,227 2,466 Curr. Liability & Prov. 1,489 2,353 3,081 2,851 3,590 2,610 3,397 3,762 Account Payables 603 766 1,069 1,083 968 1,089 1,417 1,570 Other Current Liabilities 856 1,546 1,971 1,721 2,581 1,465 1,907 2,111 Provisions 30 41 41 47 41 56 73 81 Net Current Assets -475 -1,375 -1,732 -1,009 -1,116 282 281 791 Appl. of Funds 4,501 4,715 5,032 7,173 8,069 10,602 11,150 11,838 E: MOFSL Estimates
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RIL Consol.: Financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E EPS 46.2 46.4 56.0 61.8 66.5 67.7 93.4 117.5 Cash EPS 64.1 64.5 81.9 94.3 100.9 109.0 140.1 167.5 BV/Share 359.3 409.2 455.4 600.6 696.9 1,086.4 1,171.5 1,278.2 DPS 4.8 5.1 5.5 6.0 6.0 6.4 8.3 10.8 Payout (%) 12.4 13.1 11.9 11.6 11.7 8.4 8.9 9.2 Valuation (x) P/E 48.2 48.0 39.7 36.0 33.5 32.9 23.8 18.9 Cash P/E 34.7 34.5 27.2 23.6 22.0 20.4 15.9 13.3 P/BV 6.2 5.4 4.9 3.7 3.2 2.0 1.9 1.7 EV/Sales 5.9 5.3 4.1 3.0 2.8 3.5 2.7 2.4 EV/EBITDA 38.8 35.0 25.1 20.1 19.2 20.3 14.7 11.9 Dividend Yield (%) 0.2 0.2 0.2 0.3 0.3 0.3 0.4 0.5 FCF per share 7.0 1.7 1.8 -0.8 -22.1 14.3 0.0 0.0 Return Ratios (%) RoE 13.2 12.1 13.0 11.7 10.2 7.6 8.3 9.6 RoCE 8.0 7.5 8.8 9.1 8.5 8.2 8.1 9.2 RoIC 17.0 27.9 24.2 17.8 14.5 11.1 10.2 11.2 Working Capital Ratios Fixed Asset Turnover (x) 0.8 0.9 0.7 1.0 0.8 0.6 0.7 0.7 Asset Turnover (x) 0.6 0.6 0.8 0.8 0.7 0.4 0.5 0.6 Inventory (Days) 62 59 57 43 45 64 64 64 Debtor (Days) 6 10 16 19 12 15 15 15 Creditor (Days) 80 92 100 69 59 85 85 85 Leverage Ratio (x) Current Ratio 0.7 0.4 0.4 0.6 0.7 1.1 1.1 1.2 Interest Cover Ratio 8.2 9.0 5.9 3.8 3.0 2.6 5.5 7.2 Net Debt/Equity 0.8 0.7 0.6 0.7 0.6 0.3 0.3 0.2
Consolidated - Cash Flow Statement (INR B) Y/E March FY16 FY17 FY18 FY19 FY20 FY21 FY22E FY23E PBT 387 400 494 552 536 555 859 1,079 Depreciation 116 116 167 209 222 266 301 322 Tax paid -86 -101 -98 -122 -84 -32 -202 -257 Change in net working capital 78 155 185 -288 219 -507 -32 -15 Misc -114 -75 -34 72 87 -19 -55 -65 Operating cash flow 381 496 715 423 981 262 870 1,064 Capex -466 -766 -730 -928 -756 -1,035 -850 -500 Change in investments 58 92 35 -19 141 -473 0 0 Investing cash flows -362 -663 -683 -951 -757 -1,416 -850 -500 Change in borrowings 130 215 199 865 356 -837 0 0 Misc -92 -137 -184 -265 -337 -241 0 0 Others -89 -129 -180 -263 -335 1,895 0 0 Dividend paid -73 -1 -39 -43 -46 -39 -53 -70 Financing cash flow -32 86 -20 559 -25 1,019 -53 -70 Net change in cash -13 -81 12 31 198 -135 -33 495 Closing cash balance 110 30 43 111 309 174 141 635 E: MOFSL Estimates
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Reliance Industries
Explanation of Investment Rating Investment Rating Expected return (over 12-month) BUY >=15% SELL < - 10% NEUTRAL < - 10 % to 15% UNDER REVIEW Rating may undergo a change NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation *In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend. Disclosures The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial products. MOFSL is a subsidiary company of Passionate Investment Management Pvt. Ltd.. (PIMPL). MOFSL is a listed public company, the details in respect of which are available on www.motilaloswal.com. MOFSL (erstwhile Motilal Oswal Securities Limited - MOSL) is registered with the Securities & Exchange Board of India (SEBI) and is a registered Trading Member with National Stock Exchange of India Ltd. 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(b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report MOFSL and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, the recipients of this report should be aware that MOFSL may have a potential conflict of interest that may affect the objectivity of this report. Compensation of Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. Details of pending Enquiry Proceedings of Motilal Oswal Financial Services Limited are available on the website at https://galaxy.motilaloswal.com/ResearchAnalyst/PublishViewLitigation.aspx A graph of daily closing prices of securities is available at www.nseindia.com, www.bseindia.com. Research Analyst views on Subject Company may vary based on Fundamental research and Technical Research. Proprietary trading desk of MOFSL or its associates maintains arm’s length distance with Research Team as all the activities are segregated from MOFSL research activity and therefore it can have an independent view with regards to Subject Company for which Research Team have expressed their views. 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In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. 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Specific Disclosures 1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company. 2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company 3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months 4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report 5 Research Analyst has not served as director/officer/employee in the subject company 6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months 7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months 8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months 9 MOFSL has not received any compensation or other benefits from third party in connection with the research report 10 MOFSL has not engaged in market making activity for the subject company
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Reliance Industries
******************************************************************************************************************************** The associates of MOFSL may have: - financial interest in the subject company - actual/beneficial ownership of 1% or more securities in the subject company - received compensation/other benefits from the subject company in the past 12 months - other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. - acted as a manager or co-manager of public offering of securities of the subject company in past 12 months - be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) - received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. Terms & Conditions: This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report. Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000. Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: [email protected], Contact No.:022-71881085. * MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
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