Reliance Industries Limited

Annual Report Round Up

02nd July 2021 Executive Summary

• Reliance Retail and O2C business demand remained lower during H1FY21 due to Pandemic related lockdowns; nevertheless, RIL continued to execute on its growth plans across businesses, especially in Retail and Digital (its consumer businesses). The strategy is indeed appropriate given the consumer business now accounts for nearly 50% of consolidated EBITDA as of FY21.

• The company won the confidence of large marquee investors from across the globe as it executed the largest capital raising exercise from strategic and financial investors, rights issue and JV partnerships of nearly INR 2.60 trillion (USD 35 billion). This resulted in the company turning debt free on a net debt basis as of FY21.

• RIL has spent nearly USD 50.0 billion within Digital segment, since beginning, to set up the advanced digital and connectivity infrastructure in India, to be able to offer services to an incremental 300.0 million mobile broadband subscribers, over 50.0 million fiber homes, and 50.0 million MSME businesses. • • RIL enhanced its spectrum portfolio by 56% to 1,732 MHz during FY21 through acquisition of spectrum via the auction conducted by the DoT in 2021 and spectrum trading agreement with Bharti Airtel. Such contiguous spectrum footprint and pan India infrastructure will be utilized to transition to offer 5G services.

• The O2C business witnessed both price and margin disruptions due to the pandemic and lockdowns in many countries in H1FY21. The RIL’s revenue declined with lower volumes and lower realizations due to decline in average crude and feedstock prices. Nevertheless, in case of polymers and elastomers, the company continued to operate at higher utilization rates with its keen focus on exports in H1FY21 and sharp demand recovery in H2FY21.

• The company intends to build O2C as one of the largest O2C new energy and new materials company in the world with a sustainable business model. This is also, given, the company intends to turn net carbon neutral by CY35.

• RIL’s Reliance Retail strengthened its omni presence and sourcing capability to tackle lockdowns and continued to add stores in FY21. RIL has launched new commerce services for hyperconnected growth.

• The Board of Directors of RIL has proposed a dividend of INR 7 per share compared to INR 6.50 per share in FY20 and that dividend amounts to ~ INR 45.12 bn for FY21 compared to INR 39.21 billion it was in FY21.

No. Content Slide No. 1 Reliance Industries Ltd. – View & Recommendation 04 2 Business Analysis 05 4 Key Performance Drivers 06 5 Financial Analysis 10 6 AGM Key Takeaways 15 7 Environmental, Social, & Governance (ESG) Initiatives 16 8 Valuation 17 9 Exhibits 18

• Reliance Industries Ltd. is one of the largest private sector companies in India. It has been a significant global player in the integrated energy value chain and have established leadership position in the Retail and Digital Services business in India. Its revenue segments include: • Retail: India’s largest retailer by reach and revenue. • Digital: It operates India’s largest telecom network through Jio Platforms • Media and Entertainment: It is one of the largest media houses in India. • Oil to Chemicals: It has integrated oil to chemical’s operations. • Oil and Gas (Exploration & Production – E&P): It has upstream portfolio including deep water acreage and Coal Bed Methane (CBM) blocks in India and Shale gas in the USA Key Information Shareholding Pattern (%) Sector Refinery, Telecom and Retail Particulars Mar-20 Mar-21 M-Cap (INR Cr) 1,343,138 Promoters 48.9 48.9 52-week H/L (INR) 1,696/2,369 FIIs 23.5 25.2 Volume Avg (3m K) 9,179 DIIs 13.5 12.1 CMP (INR) 2,098 Others 14.2 13.9 Target Price (INR) 2,464 Total 100.0 100.0 Upside (%) 17.4% Source: BSE Recommendation BUY

Source: Company, KRChoksey Research

RIL continued to execute on its growth plans across businesses despite COVID related challenges Pre- Post- • The company posted an 18.3% YoY decline in consolidated gross revenue in COVID COVID FY21 as the company faced headwinds in its O2C and Retail segments in FY20 FY21 H1FY21 due to pandemic. Both the volumes and realizations of O2C Revenue (INR bn) 6,600 5,392 segment fell in H1FY21. Similarly, the retail segment experienced fall in sales due to store closure and lesser footfalls in H1FY21 vs. H1FY20. YoY Growth (%) 5.6% -18.3% Reliance Jio or Digital was the only major segment with revenue growth during FY21. • Nevertheless, the company focused on growth initiatives within its consumer businesses (Reliance Retail and Digital) as it expanded its customer outreach by adding stores, strengthening its supply infrastructure, and launching JioMart within Reliance Retail business. Also, the company increased its telecom network capacity and wireless spectrum footprint while growing its customer base within Digital business.

• The company’s consumer businesses retained their leadership position and recorded robust growth, contributing ~49% of the total EBITDA as of FY21 vs. ~36% in FY20.

• The company raised nearly INR 2.60 trillion (USD 35 billion) through strategic and financial investors (INR 1.99 trillion), rights issue (INR 0.53 trillion) and JV partnerships (INR 0.08 trillion). This resulted in the company turning debt free on a net debt basis as of FY21.

• In FY21, Jio Platforms and Retail garnered INR 1.52 trillion and INR 473 billion, respectively, from strategic and financial investors including Google and Facebook. Also, BP invested INR 76.29 billion for a 49% stake in its fuel retailing business. This indicates strong confidence of international investors in RIL’s growth prospects, going forward.

• The capital raise and strong operating cash flows strengthened the company’s balance sheet position, enabling it to adhere to its zero net debt commitment ahead of stated timelines.

Pre- Post- Telecom Jio – only major segment that grew revenue in FY21 COVID COVID

• The company experienced 29.7% YoY rise in revenue in Reliance Jio FY20 FY21 segment or Digital segment (15% of total gross revenue) in FY21. Revenue (INR bn) 697 903

• The growth in revenue was driven by higher adoption of its Jio Platform YoY Growth (%) 49.7% 29.7% and Telecom services, which led to 30% YoY growth in Jio’s data traffic to 16.7 billion GBs as of Q4FY21. • The segment provides 99% telecom coverage across Indian population, offering 4G services. The company has spent nearly USD 50.0 billion, since beginning, to set up the advanced digital and connectivity ecosystem in India to be able to offer services to incremental 300.0 million mobile broadband subscribers, over 50.0 million fiber homes, and 50.0 million MSME businesses. • The segment raised INR 1.52 trillion of funds from across 13 global marquee investors, indicating strong confidence the foreign institutional investors have in the Reliance Digital segment's growth prospects. The segment struck commercial partnerships with global tech companies such as Facebook and Google to be able to offer collaborated solutions for digital commerce and devices. • The segment launched JioBusiness to provide enterprise connectivity and also the segment introduced JioPhone plans to accelerate the transition from 2G to 4G. • It also enhanced its spectrum portfolio by 56% to 1,732 MHz during FY21 through acquisition of spectrum via the auction conducted by the DoT in 2021 and spectrum trading agreement with Bharti Airtel. Such contiguous spectrum footprint and pan India infrastructure will be utilized to transition to 5G services. • Jio wants to capitalize on state of low penetration of fiber to the home (FTTH) services, currently, to connect 50.0 million households across 1,600 cities in India (from current 2.5 million connections it has), which will help it to offer bundled digital content and smart home IoT solutions services. • Continuous increase in wireless subscribers and modest growth in wireline services led to strong growth in revenue and profitability. ARPU was INR 138.2 with 13.1 GB data usage per month per user for Q4FY21 vs. ARPU of INR 130.6 with 11.05 GB data usage per month per user for Q4FY20.

Head of Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Thomson Reuters, Factset and Capital IQ Key Performance Drivers Pre- Post- COVID COVID RIL kept its O2C – polymers segment’s FY20 FY21 utilization higher despite demand headwinds Revenue (INR bn) 4,514 3,200 YoY Growth (%) 20.3% -29.1% • The O2C business witnessed both price and margin disruptions due to the pandemic and lockdowns in many countries in H1FY21. As a result, RIL’s revenue declined due to lower volumes and lower realizations with decline in average crude and feedstock prices. • Nevertheless, in case of polymers and elastomers, the company continued to operate at higher utilization rates with its keen focus on exports in H1FY21 and sharp demand recovery in H2FY21. • RIL placed 80% of polymer production in the exports market within 10 days of pandemic related challenges in Q1FY21, enabling it to operate plants at 98% levels during the period. • RIL exported nearly 2.1 MMT from Polyester business while maintaining market share in the domestic polyester market. • The company introduced biodegradable polyesters and RS3 in the paint segment. • Also, the company in order to be able to cater to Pandemic related challenges, developed essential products such as PPE suits, polyester swabs, and other medical applications. • Also, the segment experienced sharp recovery in downstream demand in H2FY21. • RIL has reorganized its Refinery and Petrochemicals business into Oil to Chemicals (O2C) segment (52% of revenue) in FY21 to facilitate faster decision making and strategic investment inflows. RIL to foray into renewable energy and new materials business for sustainable future growth of the segment • The company intends to build O2C as one of the largest O2C new energy, and new materials company in the world with a sustainable business model. This is also, given, the company intends to turn net carbon neutral by CY35. • The company intends to do so by developing next generation carbon capture, utilization, and storage technologies in the segment so that it can covert CO2 into useful products and chemicals. Also, the company intends to optimize its crude conversion to chemicals and materials by leveraging current technology and assets.

Head of Research KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS www.krchoksey.com Thomson Reuters, Factset and Capital IQ Key Performance Drivers Pre- Post- COVID COVID RIL’s Reliance Retail strengthened its omni FY20 FY21 presence and sourcing capability to tackle Revenue (INR bn) 1,630 1,538 lockdowns and continued to add stores YoY Growth (%) 24.9% -5.6% • The segment revenue was affected by store closures (80% only were operational), lower footfalls (65% of FY20) and operational disruptions through the year. • Nevertheless, gradual rebound in revenue, judicious cost management initiatives, and higher investment income enabled it to post the highest EBITDA in the segment in FY21. • RIL has strengthened its supply chain, technology, and product portfolio capability through acquisitions. • It has acquired a leading digital marketplace for pharmaceutical products called Netmeds, furniture and home décor retailer, Urban Ladder, and lingerie and intimate wear brand, Zivame. • Also, the company is in the process to acquire retail, wholesale and logistics business of Future Group for INR 247.13 billion. The deal is being contested against by Amazon, one of the investors in the future Group, who had the rights to buy into Future Retail over 3 – 10 years period, since 2019. The deal between Reliance and Future Group has gained approvals from CCI, SEBI, and stock exchanges and is awaiting approvals from NCLT and shareholders. The deal is likely to get through by September 2021. • The segment launched JioMart, an online grocery delivery platform service in May 20 across 200 cities and extended Kirana partnerships in over 33 cities as of FY21. The platform helps in offering Reliance Retail products through hyper locally present Kiranas. The service is gaining traction in Tier II and Tier III cities, contributing 50% of orders. Also, the segment activated reliancedigital.in for electronics, scaled AJIO digital platform for fashion and lifestyle products, and created mono sites for luxury brands. • The segment continued to also expand its physical presence with opening of 1,456 new stores, highest ever in the world during Pandemic, taking the total stores count to 12,711 as of FY21. • The segment raised INR 472.65 billion by selling 10.09% stake in the segment to marquee global investors in FY21. • The digital commerce and merchant partnership business now accounts for over 10% of revenue in FY21 vs. 0% such revenue from it in FY20. • RIL is the largest organized retail company in India with 2/3rd of stores operational in small towns and cities. It plans to provide supply chain infrastructure to link all major sourcing locations through warehouse, logistics, and last mile fulfillment ecosystems connecting producers, brand companies and retailers including unorganized Kirana shops.

Jio experienced strong traction in subscriber's base, Retail added one of the highest number of stores in FY21 and O2C segment witnessed decline in sales volumes

• The company was able to mitigate the demand downside faced in Refinery and Retail businesses during lockdowns through Digital segment.

• The segment witnessed 10% YoY growth in subscribers’ base to 426.2 million (the only company outside China to have crossed 400 million subscriber’s mark in a single country) as of Q4FY21.

• RIL also witnessed 30% YoY growth in Data consumption across its network to 16.7 billion GBs as of Q4FY21.

• RIL intends to provide digital services in big data, analytics, deep learning, algorithms, and AR / VR technology space.

Jio FY17 FY18 FY19 FY20 FY21

Subscriber’s base (Mns) 108.9 186.6 306.7 387.5 426.2

Data traffic (billion GBs) NA NA 32.3 48.4 62.5

O2C FY17 FY18 FY19 FY20 FY21

Total throughput (MMT) NA 70.1 77.3 79.8 71.9

Production meant for sale (MMT) NA NA 70.2 71.0 63.6

Retail FY17 FY18 FY19 FY20 FY21

Retail stores 3,616 7,573 10,415 11,784 12,711

Source: Company, KRChoksey Research

Pre- Post- • RIL reported consolidated gross revenue of INR 5,392 bn, down 18.3% YoY COVID COVID and net revenue of INR 4,669 bn, down 21.9% YoY, due to demand decline FY20 FY21 across O2C and organized retail, partially offset by rise in Digital segment Net Revenue (INR 5,975 4,669 revenue. bn) YoY Growth (%) 5.0% -21.9%

• EBITDA margins remained healthy at 17.3%, PAT stood at INR 537 Bn EBITDA (INR bn) 890 807 registering YoY growth of 34.8% with NPM at 11.5% in FY21. YoY Growth (%) 5.8% -9.3%

EBITDA Margin 14.9% 17.3% • O2C segment is the largest segment as it contributes 52% of gross revenue, followed by organized retail at 25% of gross revenue, digital services PAT (INR bn) 399 537 contribute 15% of gross revenue and other businesses add 9% of gross YoY Growth (%) 0.1% 34.8% revenue as of FY21. PAT Margin 6.7% 11.5%

• Of all the segments, 40% of the gross revenue comes from consumers- Particulars FY20 FY21 oriented businesses, which have been growing at over 60% CAGR rate over Dividend per share 6.50 7.00 FY17-FY21. YoY Growth 0.0% 7.7%

• The Board of Directors of RIL has proposed a dividend of INR 7 per share Total (INR Bn) 39.21 45.12 and that dividend amounts to INR ~45.12 bn for FY21. YoY Growth 1.8% 15.1%

Particulars (INR mn) FY17 FY18 FY19 FY20 FY21 Total gross sales 3,934,790 5,423,290 7,702,810 7,343,110 6,169,110 O2C 3,433,050 4,313,940 5,660,530 4,513,550 3,200,080 Organised retail (Consumer oriented) 337,650 691,980 1,305,660 1,630,290 1,538,180 Digital services (Consumer oriented) 5,990 239,160 465,060 696,050 902,870 Others (includes O&G, Fin services, and others etc) 158,100 178,210 271,560 503,220 527,980 Growth YoY% Total Net Sales 10.8% 37.8% 42.0% -4.7% -16.0% O2C 8.2% 25.7% 31.2% -20.3% -29.1% Organised retail (Consumer oriented) 60.2% 104.9% 88.7% 24.9% -5.6% Digital services (Consumer oriented) NM NM 94.5% 49.7% 29.7% Others (includes O&G, Fin services, and others etc) -5.4% 12.7% 52.4% 85.3% 4.9% Segment – Revenue Share (%) O2C 87.2% 79.5% 73.5% 61.5% 51.9% Organised retail (Consumer oriented) 8.6% 12.8% 17.0% 22.2% 24.9% Digital services (Consumer oriented) 0.2% 4.4% 6.0% 9.5% 14.6% Others (includes O&G, Fin services, and others etc) 4.0% 3.3% 3.5% 6.9% 8.6% Segment – EBITDA Margin (%) O2C 11.1% 10.9% 9.2% 11.9% 11.9% Organised retail 2.3% 3.0% 4.2% 5.9% 6.4% Digital services 2.3% 3.0% 4.2% 5.9% 6.4% Others (includes O&G, Fin services, and others etc) -3.9% 0.6% -0.5% 10.2% 12.5% Source: Company, KRChoksey Research

Materials cost % of sales Employee cost % of sales 2.7% • While the gross revenue declined 18.3% YoY, 64.3% 2.5% 63.3% 2.1% cost of raw materials declined by 27.8% YoY in 62.1% 61.4% 2.2% 2.0% FY21. The diversified nature of RIL’s businesses with emphasis on optimization of 54.3% production processes and material’s usage seem to have helped RIL to see higher fall in raw materials costs than in gross sales. FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

Other expenses % of sales Total expenses % of sales • We expect the raw materials costs to rise in 13.5% 11.7% the foreseeable future owing to opening of 11.7% 14.6% 78.5% 77.6% 12.2% 76.0% lockdowns and rise in crude oil prices. 77.0% However, GRMs are also expected to recover in line with recovery in demand. The company has not disclosed GRMs for FY21. 71.6%

• Total expenses as a % of sales were influenced by fall in raw materials costs. FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

USD GRM / bbl

11.00 10.80 11.60 9.20 8.90

FY16 FY17 FY18 FY19 FY20 FY21 Source: Company, KRChoksey Research

Gross margins trend Gross profits growth trend • For FY21, gross margin improved by 513 bps YoY 37.3% 32.2% on account of decline in raw materials costs at a 30.5% 31.7% 30.7% faster rate than in net sales. 33.4% 40.7% 9.3% 10.1% • EBITDA for FY21 stood at INR 807.37 bn (-9.3% YoY), with EBITDA margins at 17.3% (increased by FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21 240 bps YoY), the expansion in margin was mainly -9.4% due to lower raw materials costs as a % of sales, owing to Pandemic related demand headwinds. EBITDA margins trend EBITDA profits growth trend 17.3% 38.9% 16.4% • Within segments, EBITDA margin for O2C was at 31.2% 11.9% (flat YoY), Organized retail segment’s 14.8% 15.1% 14.9% EBITDA margin was at 6.4% (+50bps YoY) & 5.8% 10.8% Digital Services segment’s EBITDA margin was at -9.3% 37.7% (+420bps YoY). FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

• Going forward, the margins are expected to benefit PAT margins trend PAT profits growth trend from improved products mix in Retail segment and 10.0% 34.8% strong growth in data consumption in digital 8.4% segment. Additionally, oil and gas is expected to 9.0% 6.4% 20.9% start adding slightly to the margin expansions 6.0% 10.4% overall, with ramp up in its production. -0.1% 0.1%

FY17 FY18 FY19 FY20 FY21 FY17 FY18 FY19 FY20 FY21

Source: Company, KRChoksey Research

• Working capital: RIL witnessed positive Working capital as a % of sales Working capital cycle days working capital cycle (as a % of sales) in FY21. 132 137 136 15% This was driven by increased investments; 109 102 102 97 87 partially offset by reduced inventory and trade 64 67 receivables. 12 14 12 15 FY17 FY18 FY19 FY20 FY21 8

-27% -26% FY17 FY18 FY19 FY20 FY21 • FCF and capex: Free cash flow generation -30% Recievable days Inventory days weakened during FY21 due to continued capex -36% Payable days the company resorted to in Retail and Digital segments. We expect FCF generation to FCF and Capex improve meaningfully from FY23E onwards as Return ratios 16.2% the company’s capital expenditure trend 1,058 10.7% 10.6% 936 normalizes. 6.9% 781 740 765 11.8% 10.1% 8.6% 6.7% 216 FY17 FY18 FY19 FY20 FY21 • Return ratios: Increased capex coupled with -6.2% FY17 FY18 FY19 FY20 FY21 lower demand conditions in FY21 led to -15.7% -25 -286 -513 decline in return ratios in FY21. We expect it Reported ROE Reported ROCE FCF Capex -797 to improve over the forecast period with recovery in business prospects and profitability while capital investments trend Historical PE normalize. 34.0 27.0 20.0 27.6

12.9

FY17 FY18 FY19 FY20 FY21 Source: Company, KRChoksey Research

• Largest capital raise in FY21: RIL carried out largest ever capital raise which exceeded INR 3.24 trillion (USD 44.4 billion) through Equity, Rights issue, and Asset monetization, from global marquee investors in FY21. As a result, the company has turned net debt free, much ahead of estimated timeline of March 21 (which was promised 2 years ago). • Launched the new energy and materials business: The company has launched renewable energy business and plans to develop new materials for sustainable operations in O2C segment. However, while building new energy and material businesses, the company might have to resort to write-downs of the legacy assets. • Continued its expansion in Retail segment: The company carried out one of the largest expansions during COVID 19 challenges, by adding 1,456 stores during the year, taking its total to 12,711 total stores as of FY21. The scale and size of RIL’s organized retail makes it 6x larger than the next challenger. Annual General Meeting – Key Take Aways:  RIL has revenue leadership in 19 out of 22 circles it caters to in India. Google and Jio developed an affordable Android smartphone, JioPhone Next, which is slated to be available from Ganesh Chaturthi in CY21. Google cloud and cloud solutions, and Jio have collaborated to power 5G telecom services and to meet internal needs of Reliance Retail, Jio Mart, Jio Saavn and Jio Health businesses.  JioMart has been launched on WhatsApp on a trial basis. The company plans to launch new commerce solution linking merchants and consumers, over the next few quarters. The company has operationalized 10 MW capacity of Jio Azure Cloud Data centers in Jamnagar and Nagpur. The company plans to offer its data center services to SMEs over the coming quarters. Jio Fiber has acquired over 2 mn premises over last year. It has cumulative base of 3 mn active homes and business users, with which, Jio Fiber has become the largest and fastest growing fixed broadband services provider in India. The company is physically present outside 12 mn houses and business premises in top 100 cities.  The company has partnered with 3 lakh merchants across 150 cities under Reliance Retail. There has been 3x growth in Kirana orders. The company plans to onboard 1 cr merchants over the next 3 years. The company intends to grow Reliance Retail 3x over 3-4 years.  The company plans to commission first fiber carbon plant to support its hydrogen and solar ecosystem. The company plans to use green hydrogen and carbon dioxide as a raw material to produce new green chemicals, green fertilizers, and e-fuels.

Environment, Social, Governance Initiatives

• The company has adopted best practices from GRI, IIRC, TCFD, SDGs, and WEF – IBC metrics, for disclosures made in the annual report. The company has been an early adopter of WEF – IBC framework for ESG disclosures.

• Corporate Social Responsibility: Reliance foundation supported national COVID cause by setting up and operating 2,300 beds across various locations, supplying over 100,000 masks and PPEs to health workers and caregivers per day, providing free fuel to emergency vehicles, and provided over 7.5 cr free meals to underprivileged.

• Reduce GHG emissions: RIL follows a Health, Safety and Environment (HSE) policy as a mainspring for its environmental and sustainable action plans. The company sourced 2 million barrels of first carbon neutral oil in the world in FY21. The company has resorted to Petcoke gasification to maximize hydrogen production, which is emerging as the choicest fuel. The Petcoke gasification process also helps RIL to reduce the cost of capturing carbon and converting it to value added chemicals in a sustainable manner. RIL envisages to turn net carbon neutral by FY35. The company reduced Green House Gas (GHG) emissions by 6.2% during FY21. The company achieved it through energy conservation, fuel mix optimization and adoption of IoT, AI and ML technologies across O2C operations. The company intends to reduce the GHG further by transforming it into a sustainable chemicals company from transportation fuel one, use more of renewable energy than fossil fuel for captive purpose, and use more of biofuels and bio pathways to fix Co2 and facilitate conversion to renewable fuels and materials.

• Water management: RIL recycles water to reduce freshwater dependency. The company uses treated affluents in the cooling towers, for horticulture, and firewater networks. The company recycled nearly 99 million kilo liters of water against 219 million kilo liters of water withdrawn and 33 million kilo liters of water discharged for FY21.

• Waste management: The company recycles discarded PET bottles into fabric such as Recron Green Gold and plans to double up its recycling capacity to ~ 5 billion PET bottles, annually. RIL has installed 100 reverse vending machines in major cities to enhance public awareness about plastic waste. Also, the company uses bioplastics for agriculture and packaging applications, uses flexible plastic waste in making roads through its initiative called ReRoute, and transforms multilayered Packaging (MLP) waste to stable oil at refineries and O2C plants to produce plastics again.

• Energy savings and increased use of renewable energy: RIL saved 51.48 lakh GJ and used 6.91 lakh GJ renewable energy for company operations. The company uses energy saving systems in digital business. Also, RIL uses rooftop solar panels, cofire biomass with coal, and invest in alternate energy sources such as fuel cells and biofuels.

We continue to maintain our positive view on the long-term performance of the stock, and we like the business reorganization initiatives at RIL (HoldCo – OpCo structure), its focused balance sheet deleveraging strategy by carving out its diverse business interests into separate entities (R-O2C/Jio Platforms/Retail) and ability to attract long term investors (FaceBook/Saudi Aramco/BP - Fuel retail JV). Gradually, RIL is becoming digital company rather than a pure refinery business and transforming into renewable energy producer than a fossil fuel producer with commitment to turn net carbon neutral by FY35. While the Petchem & refining business may see some challenges in the near term due to moderate crude oil price scenario and a gradual recovering demand environment, we expect these to be offset by steady performance in its Digital and Consumer businesses (which together contributed to ~50% of EBITDA in Q4FY21; these businesses are forecasted to grow EBITDA at strong double-digits going forward though). We believe, the Jio business is likely to further benefit with growth in subscriber base and faster adoption of FTTH services among users. Further, strong balance sheet offers lot of comfort for any future expansions like renewable energy production and 5G. We estimate a 12.6% CAGR growth in revenue and a 25.9% CAGR rise in EBITDA over FY21-FY23E driven by Digital, Retail segments and O2C segments while oil and gas segment ramps up due to incremental commissioned capacity. At a CMP of INR 2,098 per share; RIL is trading at 18.1x FY23EPS. Based on our FY23 estimates and using SOTP methodology, we arrive at a target price of INR 2,464 per share; a potential upside of 17.4%. Accordingly, we reiterate our “BUY” rating on the shares of RIL.

Income Statement (INR Mn) Q4FY21 Q3FY21 Q4FY20 QoQ YoY FY21 FY20 YoY Net Revenue 1,495,750 1,178,600 1,364,920 26.91% 9.59% 4,669,240 5,975,350 -21.86%

Total Expenditure 1,262,240 962,940 1,144,580 31.08% 10.28% 3,861,870 5,085,260 -24.06%

Cost of Raw Materials 668,910 535,180 576,830 24.99% 15.96% 1,999,150 2,606,210 -23.29%

Purchase of Stock 307,850 276,390 317,970 11.38% -3.18% 1,018,500 1,496,670 -31.95%

Changes in Inventories 38,610 -89,080 990 -143.34% 3800.00% -90,640 -50,480 79.56%

Employee Cost 39,760 42,440 37,130 -6.31% 7.08% 148,170 140,750 5.27%

Other expenses 207,110 962,940 1,144,580 -78.49% -81.91% 786,690 892,110 -11.82%

EBITDA 233,510 215,660 220,340 8.28% 5.98% 807,370 890,090 -9.29% EBITDA Margin (%) 15.61% 18.30% 16.14% (269bps) (53bps) 17.29% 14.90% 240 bps Depreciation 69,730 66,650 63,320 4.62% 10.12% 265,720 222,030 19.68%

EBIT 163,780 149,010 157,020 9.91% 4.31% 541,650 668,060 -18.92%

Interest Expense 40440 43,260 60,640 -6.52% -33.31% 211,890 220,270 -3.80%

Other Income 32,370 44,530 38,810 -27.31% -16.59% 163,270 131,640 24.03%

PBT 155,710 150,280 135,190 3.61% 15.18% 493,030 579,430 -14.91%

Exceptional Items -7,970 1,210 42,670 -758.68% -118.68% -56,420 44,440 -226.96%

Tax 13,870 880 26,770 1476% -48.19% 17,220 137,260 -87.45%

Share in P&L / MI 140 750 -290 -81.33% -148.28% 5,160 1,070 382.24%

PAT 149,950 148,940 65,460 0.68% 129.07% 537,390 398,800 34.75%

PAT Margin 10.03% 12.64% 4.80% (261 bps) 523 bps 11.51% 6.67% 484 bps

EPS 20.13 19.93 9.95 1.00% 102.31% 75.21 63.06 19.27%

Source: Company, KRChoksey Research

As % of Sales FY17 FY18 FY19 FY20 FY21

Net Revenue 100.0 100.0 100.0 100.0 100.0

Cost of Raw Material 69.5 68.3 69.3 67.8 62.7

Gross Profit 30.5 31.7 30.7 32.2 37.3

Employee Expenses 2.7 2.4 2.2 2.4 3.2

Other Expenses 12.6 12.9 13.7 14.9 16.8

- Stores and Spares 1.8 1.5 1.2 1.0 1.2

- Electric power and fuel 3.7 3.7 3.0 2.5 2.8

- Labor processing, product royalty, and machinery hire charges 0.6 0.4 0.2 0.1 0.1

- Repairs to building 0.0 0.0 0.1 0.1 0.0

- Selling and distribution expenses 3.4 2.7 2.4 2.2 2.8

- Establishment expenses 3.2 5.2 6.7 9.1 9.9

- Misc. Expenses -0.1 -0.6 0.1 0.0 0.0

EBITDA* based on Net Revenue 15.1 16.4 14.8 14.9 17.3

YoY Growth (%) FY17 FY18 FY19 FY20 FY21

Other Expenses 6.7 31.2 54.6 14.3 -11.8

- Stores and Spares 5.9 5.3 16.5 -16.7 -4.5

- Electric power and fuel 4.7 29.5 16.9 -11.3 -12.5

- Labor processing, product royalty, and machinery hire charges 32.6 -11.4 -32.4 -32.7 -36.6

- Repairs to building 54.1 20.6 94.3 50.8 -68.3

- Selling and distribution expenses 8.8 2.3 31.1 -6.1 2.5

- Establishment expenses -8.3 108.3 89.4 42.1 -14.9

- Misc. Expenses -88.1 1,366.5 -131.2 -124.0 29.9

EBITDA 10.8 38.9 31.2 5.8 -9.3

Source: Company, KRChoksey Research

Income Statement INR Mn FY19 FY20 FY21 FY22E FY23E Net Revenues 5,692,090 5,975,350 4,669,240 5,688,624 5,882,978 COGS 3,944,870 4,052,400 2,927,010 3,473,405 3,592,075 Gross profit 1,747,220 1,922,950 1,742,230 2,215,219 2,290,903 Employee cost 124,880 140,750 148,170 180,518 186,686 Other expenses 780,670 892,110 786,690 938,623 823,617 EBITDA 841,670 890,090 807,370 1,096,078 1,280,600 EBITDA Margin 14.79% 14.90% 17.29% 19.27% 21.77% Depreciation & amortization 209,340 222,030 265,720 308,448 352,636 EBIT 632,330 668,060 541,650 787,630 927,964 Interest expense 164,950 220,270 211,890 185,710 187,355 Other income 83,860 131,640 163,270 78,763 92,796 Exceptional items 0 44,440 -56,420 0 0 PBT 551,240 534,990 549,450 680,683 833,405 Tax 153,900 137,260 17,220 185,710 187,355 Share of profits from JV / Associates 1,030 1,070 5,160 0 0 PAT 398,370 398,800 537,390 494,973 646,050 EPS (INR) 66.80 63.06 75.21 88.76 115.86

Source: Company, KRChoksey Research

Balance Sheet INR Mn FY19 FY20 FY21 FY22E FY23E Non-current assets Property, plant and equipment 3,021,150 4,359,200 4,510,660 5,211,638 5,902,915 Capital work-in-progress 1,501,780 590,960 711,710 1,322,507 1,388,632 Intangible assets (inc. Goodwill) 1,255,440 1,467,480 1,449,740 947,016 994,367 Investments 1,646,120 2,038,520 2,123,820 2,230,011 2,341,512 Others 279,040 620,390 686,080 720,384 756,403 Total non-current assets 7,703,530 9,076,550 9,482,010 10,431,555 11,383,829 Current assets Inventories 675,610 739,030 816,720 904,755 935,666 Trade receivables 300,890 196,560 190,140 231,651 239,566 Cash and cash equivalents 110,810 309,200 173,970 8,021 151,769 Others 1,233,220 1,337,810 2,549,280 2,676,744 2,810,581 Total current assets 2,320,530 2,582,600 3,730,110 3,821,171 4,137,582 TOTAL ASSETS 10,024,060 11,659,150 13,212,120 14,252,727 15,521,411 EQUITY AND LIABILITIES Equity share capital 59,260 63,390 64,450 64,450 64,450 Other equity 3,811,860 4,469,920 6,937,270 8,502,668 9,349,894 Total equity 3,953,920 4,613,470 7,994,320 8,567,118 9,414,344 LIABILITIES Borrowings 2,075,060 1,976,310 1,636,830 1,676,830 1,676,830 Others 821,860 940,210 805,290 844,242 885,142 Total non-current liabilities 2,896,920 2,916,520 2,442,120 2,521,072 2,561,972 Borrowings 644,360 937,860 600,810 600,810 600,810 Trade payables 1,083,090 967,990 1,088,970 1,206,351 1,247,567 Others 1,445,770 2,223,310 1,085,900 1,357,375 1,696,719 Total current liabilities 3,173,220 4,129,160 2,775,680 3,164,536 3,545,096 Total liabilities 6,070,140 7,045,680 5,217,800 5,685,608 6,107,067 TOTAL EQUITY AND LIABILITIES 10,024,060 11,659,150 13,212,120 14,252,727 15,521,411

Source: Company, KRChoksey Research

Cash Flow Statement INR Mn FY19 FY20 FY21 FY22E FY23E Net Cash Generated From Operations 423,460 980,740 261,850 1,518,715 1,420,962 Net Cash Flow from/(used in) Investing Activities -951,280 -757,170 -1,416,340 2,174,343 -662,470 Net Cash Flow from Financing Activities 559,060 -25,410 1,019,020 -205,069 -412,001 Net Inc/Dec in cash equivalents 31,240 198,160 -135,470 3,269,775 75,504 Opening Balance 73,360 110,810 309,200 173,970 3,443,745 Closing Balance Cash and Cash Equivalents 110,810 309,200 173,970 3,443,745 3,519,248

Key Ratio FY19 FY20 FY21 FY22E FY23E EBITDA Margin (%) 14.8% 14.9% 17.3% 19.3% 21.8% Tax rate (%) 27.9% 25.6% 3.1% 27.3% 22.5% Net Profit Margin (%) 6.4% 6.0% 10.0% 7.5% 9.4% RoE (%) 10.1% 8.6% 6.7% 5.8% 7.1% RoCE (%) 10.7% 10.6% 6.9% 8.0% 8.9% EPS (INR) 66.80 63.06 75.21 88.76 115.86

Source: Company, KRChoksey Research

ANALYST CERTIFICATION: I, Parvati Rai (MBA-Finance, M.com), Head Research, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited and Bombay Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014.

We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.

KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. 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 of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall 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. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. 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. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services.

KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months.

KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report.

It is confirmed that, Parvati Rai (MBA-Finance, M.com), Head Research of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions.

KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst.

It is confirmed that, Parvati Rai (MBA-Finance, M.com), Head Research do not serve as an officer, director or employee of the companies mentioned in the report.

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 KRCSSPL and affiliates 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 them of and to observe such restriction.

Please send your feedback to [email protected] Visit us at www.krchoksey.com KR Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: +91-22-6633 5000; Fax: +91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.