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19 April 2019 4QFY19 Results Update | Sector: Oil & Gas Reliance Industries BSE SENSEX S&P CNX 39,140 11,753 CMP: INR1386 TP: INR1431(+3%) Neutral Bloomberg RIL IN Better petrochem offsets poor refining performance Equity Shares (m) 5,922 M.Cap.(INRb)/(USDb) 8765.9 / 126.1 Reliance Industries’ (RIL) standalone EBITDA declined 6% QoQ (+2% YoY) to INR137b 52-Week Range (INR) 1407 / 907 due to a sequential contraction in the refining margin and a fall in petrochem volume. 1, 6, 12 Rel. Per (%) 0/11/34 Despite the YoY increase in EBITDA, almost doubling of interest cost resulted in PBT 12M Avg Val (INR M) 10619 declining by 5% YoY (-5% QoQ). PAT stood at INR85.6b (our estimate: INR84.4b; -2% Free float (%) 53.8 YoY, -4% QoQ). A better-than-expected performance in the non-core segments resulted in consol. EBITDA of INR208b (our estimate: INR192b; +13% YoY, -2% QoQ). Financials & Valuations (INR b) Consol. PAT stood at INR104b (our estimate: INR98b; +10% YoY, flat QoQ). Y/E March 2019 2020E 2021E For the full year, standalone EBITDA stood at INR583b (+13% YoY) due to higher Net Sales 5,671 7,292 7,854 volume and margins in the petrochem segment, despite a weaker performance in the EBITDA 839 942 1,105 Net Profit 398 419 476 refining segment. Consol. FY19 EBITDA stood at INR839.2b (+31% YoY) due to a better EPS (INR) 67.2 70.7 80.3 contribution from the telecom and retail segments. Consol. PAT stood at INR398.4b EPS Gr. (%) 10.4 5.2 13.6 (+10% YoY). BV/Sh. (INR) 653 717 789 Higher-than-expected GRM: GRM stood at USD8.2/bbl (our estimate: RoE (%) 11.7 10.3 10.7 USD8/bbl), as against USD11.0/bbl in 4QFY18 and USD8.8/bbl in 3QFY19; RoCE (%) 9.1 7.7 8.6 throughput was at 16.0mmt (our estimate: 16.8mmt; -4% YoY, -11% QoQ) Payout (%) 10.3 10.3 10.3 due to a planned shutdown in one of the CDUs. Premium over Singapore Valuations P/E (x) 20.7 19.6 17.3 complex stood at USD5.0/bbl. P/BV (x) 2.1 1.9 1.8 Petrochem volumes decline: Petrochem EBIT grew 23% YoY but declined 2% EV/EBITDA (x) 13.0 11.2 9.2 QoQ due to a shutdown in the PP and LDPE units. EBIT margin improved EV/Sales (x) 1.9 1.4 1.3 from 17.2% in 4QFY18 and 17.6% in 3QFY19 to 18.9% in the quarter due to a non-commensurate contraction in margins with respect to prices. On a blended basis, EBITDA/mt stood at USD422 (+10% YoY, +11% QoQ). Estimate change Domestic E&P continues the downtrend: Gas production from KG D6 stood TP change Rating change at 1.82mmscmd in the quarter, down from 1.87mmscmd in 3QFY19. CBM production stood at 0.97mmscmd. RJio’s growth slows down: RJio’s growth momentum slowed relative to the last 3-4 quarters on account of slower subscriber adds (yet estimated to be the only player growing subscribers) and lower ARPUs. Revenue/EBITDA grew at a modest 7% QoQ to INR111.1b/INR43.3b – a miss of 4-5%. Margins stood flat QoQ at 39% (our estimate: 39.3%), as revenue growth was partly offset by higher opex. Subdued EBITDA growth, coupled with a steep 19% QoQ rise in finance cost, led to only a marginal 1% QoQ increase in PAT to INR8.4b (8% miss). Valuation and view nd Our report ‘Weakness ahead in refining and petrochem’ (released on 2 Apr’19) echoes with management’s guidance of expanding supply glut in both refining and petrochem in 1-2 years, which would keep the core sector performance under pressure. Capex intensity remains high with total investment of INR327b in 4QFY19 and INR1,345b in FY19 (+70% YoY). There is no specific guidance on capex. However, the petcoke gasifiers appear to have been commissioned fully, which should decrease capex, at least in the standalone business. Swarnendu Bhushan – Research Analyst ([email protected]); +91 22 6129 1529 Sarfraz Bhimani – Research Analyst ([email protected]); +91 22 7193 4309 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 We value RIL using SOTP. Core segment of refining and petrochem is valued at 7.5x FY21E EV/EBITDA. Peers trade at 5.8-6.0x FY20E EV/EBITDA. RIL’s premium is due to its ability to optimize crude basket, product yield, risk management and multiple feedstock availability for its petrochem segment. We do believe that current valuations of the new-age retail and telecom segments reflect fair value of those businesses, but this is already built in our rich valuations. We reiterate our Neutral stand on the company with a target price of INR1,431, which leaves limited upside from the current levels. RJio’s equity value reduced by 10% to INR230/share on higher debt Strong subscriber growth, high churn seen in incumbents’ subscriber base and the huge opportunity in the feature phone category are indicative of the focus on subscriber growth over ARPU increase. We have subsequently factored in a healthy 8m monthly subscriber adds (v/s 6m earlier) and ARPU of INR126 (v/s INR129 earlier) in FY20. However, we expect the trend to reverse in FY21, when RJio would have reached 406m subscribers and Bharti/VIL’s network capability would have significantly ramped up too, shifting the focus on ARPU growth. Subsequently in FY21, we expect ARPU growth of 10% to INR139 and meager 17m subscriber addition. For FY20, we have revised down our EBITDA estimate by 11% due to an increase in cost attributed to fiber and tower demerger (explained in detail below), but estimate PAT to remain largely unchanged due to a corresponding decline in incremental depreciation. For FY21, we have revised up our EBITDA estimate by 3% and PAT estimate by 2.4x on a low base, given the expectation of a reversal in ARPU trends. However, we must emphasize that our forecast remains fluid as there is yet limited cash flow data available related to the fiber and tower demerger. We have reduced our DCF-based TP to INR230 (v/s INR255 earlier), with implied EV/EBITDA of 19/12x on FY20/21E. The revision in TP is attributed to the debt increase of ~INR600b as the OCPS categorized in equity capital is part of the SPV debt now (considered as part of RJio). On an FY20 basis, the stock trades at 19.6x consol. EPS of INR70.7 and EV/EBITDA of 11.2x. Our SOTP-based fair value stands at INR1,431/share. Maintain Neutral. 19 April 2019 2 Reliance Industries Standalone - Quarterly Earnings Model Y/E March FY18 FY19 FY18 FY19 FY19 Var v/s 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE Est. (%) Net Sales 6,42,170 6,85,320 7,32,560 8,40,370 9,11,590 9,61,670 10,00,960 8,35,970 29,00,420 37,10,190 10,77,074 -22% YoY Change (%) 20.0 15.0 18.5 25.2 42.0 40.3 36.6 -0.5 19.8 27.9 28.2 EBITDA 1,15,890 1,29,830 1,37,440 1,34,250 1,51,540 1,48,920 1,45,070 1,37,040 5,17,410 5,82,570 1,32,647 3% Margins (%) 18.0 18.9 18.8 16.0 16.6 15.5 14.5 16.4 17.8 15.7 12.3 Depreciation 21,580 22,680 24,750 26,790 27,620 27,450 25,860 24,650 95,800 1,05,580 26,580 -7% Interest 7,880 13,140 10,940 14,600 21,380 24,170 24,050 27,910 46,560 97,510 18,818 48% Other Income 19,180 20,570 16,240 26,210 20,680 20,120 24,560 28,830 82,200 94,190 27,394 5% PBT 1,05,610 1,14,580 1,17,990 1,19,070 1,23,220 1,17,420 1,19,720 1,13,310 4,57,250 4,73,670 1,14,643 -1% Tax 23,650 31,930 33,450 32,100 35,020 28,830 30,440 27,750 1,21,130 1,22,040 30,257 -8% Rate (%) 22.4 27.9 28.3 27.0 28.4 24.6 25.4 24.5 26.5 25.8 26.4 Adj PAT 81,960 82,650 84,540 86,970 88,200 88,590 89,280 85,560 3,36,120 3,51,630 84,386 1% YoY Change (%) 8.6 7.3 5.4 6.7 7.6 7.2 5.6 -1.6 7.0 4.6 -3.0 Margins (%) 12.8 12.1 11.5 10.3 9.7 9.2 8.9 10.2 11.6 9.5 7.8 Consolidated - Quarterly Earnings Model Y/E March FY18 FY19 FY18 FY19 FY19 Var v/s 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4QE Est. (%) Net Sales 8,34,710 9,14,810 9,98,100 11,69,150 12,87,560 14,33,230 15,63,970 13,86,590 39,16,770 56,71,350 16,09,848 -14% YoY Change (%) 28.4 20.1 25.7 37.8 54.3 56.7 56.7 18.6 28.3 44.8 37.7 Total Expenditure 7,09,170 7,59,160 8,22,220 9,84,460 10,80,950 12,22,150 13,50,800 11,78,270 32,75,010 48,32,170 14,18,091 -24% EBITDA 1,25,540 1,55,650 1,75,880 1,84,690 2,06,610 2,11,080 2,13,170 2,08,320 6,41,760 8,39,180 1,91,757 9% Margins (%) 15.0 17.0 17.6 15.8 16.0 14.7 13.6 15.0 16.4 14.8 11.9 Depreciation 30,370 42,870 45,300 48,520 51,730 52,290 52,370 52,950 1,67,060 2,09,340 54,017 -2% Interest 11,190 22,720 20,950 25,660 35,500 39,320 41,190 48,940 80,520 1,64,950 39,826 23% Other Income 32,250 23,310 22,180 22,030 17,780 12,500 24,600 31,470 99,770 86,350 38,455 -18% PBT 1,16,230 1,13,370 1,31,810 1,32,540 1,37,160 1,31,970 1,44,210 1,37,900 4,93,950 5,51,240 1,36,369 1% Tax 25,440 32,400 37,750 37,870 42,410 36,490 40,690 34,310 1,33,460 1,53,900 38,837 -12% Rate (%) 21.9 28.6 28.6 28.6 30.9 27.7 28.2 24.9 27.0 27.9 28.5 Reported PAT 90,790 80,970 94,450 94,590 94,850 95,490 1,03,760 1,04,270 3,60,800 3,98,370 97,532 7% YoY Change (%) 28.3 12.8 25.5 17.5 4.5 17.9 9.9 10.2 20.9 10.4 3.1 Margins (%) 10.9 8.9 9.5 8.1 7.4 6.7 6.6 7.5 9.2 7.0 6.1 Key assumptions Refining throughput 17.5 18.1 17.7 16.7 16.6 17.7 18.0 16.0 70.0 68.3 16.8 (mmt) GRM (USD/bbl) 11.9 12.0 11.6 11.0 10.5 9.5 8.8 8.2 11.6 9.3 8.0 Petchem sales (mmt) 2.4 2.6 2.8 3.1 3.1 3.3 3.5 3.1 10.9 13.0 3.4 Petchem (EBITDA/mt) 329 355 380 382 447 408 379 422 362 414 379 E: MOFSL Estimates 19 April 2019 3 Reliance Industries Exhibit 1: RIL segment-wise performance snapshot (standalone) FY18 FY19 4QFY19 (%) In INR b 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ Segmental Revenues Petchem 241 268 325 368 390 430 453 414 12.5 -8.7 Refining 589 593 638 743 814 815 889 688 -7.4 -22.6 Oil
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  • Reliance Industries Companyname

    Reliance Industries Companyname

    COMPANY UPDATE RELIANCE INDUSTRIES Déjà vu: Downgrade in order India Equity Research| Oil, Gas and Services COMPANYNAME We turned very bullish on Reliance Industries (RIL) with our BRAVEHEART EDELWEISS 4D RATINGS ‘BUY’ in 2016; four years on and a 4x rally since, we believe the stock’s Absolute Rating HOLD primary triggers—deleveraging, asset monetisation and digital Rating Relative to Sector Outperform momentum—have played out. We also believe the pendulum has swung Risk Rating Relative to Sector Medium entirely: from extreme pessimism to exuberance, infallible expectations Sector Relative to Market Equalweight on execution and a peak analyst ‘Buy’ ratio (80%). That the valuation is pricing in overly high growth expectations when its WACC is rising and economic spread being negative suggest risks lie on the downside. This is MARKET DATA (R: RELI.BO, B: RIL IN) CMP : INR 2,146 not RIL’s first brush with euphoria: 1994 (India liberalisation), 2000 (Y2K) Target Price : INR 2,105 and 2008 (KG-D6/Refining). The current exuberance gives us a sense of déjà vu; downgrade to ‘HOLD’ with a target price of INR2,105. 52-week range (INR) : 2,163 / 867 Share in issue (mn) : 6,339.4 M cap (INR bn/USD mn) : 14,148 / 70,157 Ten-year Jio 35% CAGR, eh; high WACC; negative economic spread Avg. Daily Vol.BSE/NSE(‘000) : 11,335.2 Our two-stage reverse-DCF analysis shows the market is baking in high EPS growth, particularly for Jio Platforms (35% CAGR sustaining for ten years). We believe the SHARE HOLDING PATTERN (%) associated risk is high, and despite its strong past execution, even RIL is not infallible.
  • Grocery Retail - Changing Landscape Competition in the Online Grocery Space Coming to the Forefront

    Grocery Retail - Changing Landscape Competition in the Online Grocery Space Coming to the Forefront

    Sector Update | 4 June 2021 Retail Retail Grocery Retail - Changing landscape Competition in the Online Grocery space coming to the forefront Unlike most other Retail categories, Grocery has remained largely insulated from the Online disruption. However, the prominence of Online players and their growing scale in the last few years makes us sit up and take notice. In this report, we discuss the growing scale of Online players, market opportunity, challenges, evolving business models, and the competitive position of offline retailers. e-Grocers turn sizeable, no more minnows Historically, e-Grocery hardly garnered single-digit share of the overall grocery market in India and globally, with multiple players trying to make inroads with limited success. In the last few years, the growth of e-Grocery players have certainly made us sit up and take notice. While penetration remains low, the online grocery market has grown 30x in the last 7-8 years to reach USD3b. Viewed differently, it is cumulatively the third largest Modern Retail player in the market behind DMart and Reliance Retail. This space is now expected to grow over 59% CAGR to USD18b by CY24E. India has 154m online transacting households in CY20, with 130m already using e-Grocery platforms or willing to try, creating an addressable market of a whopping USD293b. Of this, ~55% of the addressable market lies beyond Tier II cities, so e-Grocers will increasingly move to smaller towns, a region that has low coverage so far. COVID-19 led lockdown has certainly helped e-Grocers, with CY20 monthly exit run-rate almost 2x that of Jan’20 GMV and largely sustaining the surge seen during the lockdown as evident from our app visit analytics.
  • Monoct152007 Letter to Madam/Sirs

    Monoct152007 Letter to Madam/Sirs

    November 29, 2020 BSE Limited National Stock Exchange of India Limited Phiroze Jeejeebhoy Towers Exchange Plaza Dalal Street Plot No. C/1, G Block Mumbai 400 001 Bandra-Kurla Complex, Bandra (East) Mumbai 400 051 Scrip Code: 500325 / 890147 Trading Symbol: RELIANCE / RELIANCEPP Dear Sirs, Sub: Compliance under Regulation 23(9) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 In terms of Regulation 23(9) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, we enclose disclosure of Related Party Transactions on a consolidated basis, in the format specified in the accounting standards for the half year ended September 30, 2020. Please take the same on record. Thanking you, Yours faithfully, For Reliance Industries Limited Savithri Parekh Joint Company Secretary and Compliance Officer Encl: a/a Copy to: The Luxembourg Stock Exchange Singapore Stock Exchange Societe de la Bourse de Luxembourg 2 Shenton Way, #19- 00 SGX 35A boulevard Joseph II Centre 1, B P 165, L-2011 Luxembourg Singapore 068804 Regd. Office: 3rd Floor, Maker Chambers IV, 222, Nariman Point, Mumbai- 400 021, India Phone #: +91-22-3555 5000, Telefax: +91-22-2204 2268. E-mail: [email protected], Website: www.ril.com CIN- L17110MH1973PLC019786 Related Party disclosure for Reliance Industries Limited on a consolidated basis for the half year ended September 30, 2020 (i) List of Related Parties with whom transactions have taken place and relationships Sr. No. Name of the Related Party Relationship 1 Actoserba Active Wholesale Private Limited ^ 2 Ashwani Commercials Private Limited 3 Atri Exports Private Limited 4 Big Tree Entertainment Private Limited 5 Carin Commercials Private Limited 6 CCN DEN Network Private Limited 7 Chander Commercials Private Limited 8 Creative Agrotech Private Limited 9 Sr.