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.
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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
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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 & Gas 6 8 8 6 8 7 6 5 -15.0 -13.8 Others 3 3 3 4 3 5 4 5 43.4 51.6 Total 839 872 974 1,121 1,214 1,257 1,352 1,113 -0.7 -17.7 Segmental EBITDA
Petchem 51 59 69 77 92 95 96 94 21.1 -2.4 Refining 71 73 69 64 61 61 58 50 -22.5 -15.1 Oil & Gas 1 2 5 3 5 4 5 3 -22.5 -49.5 Total 123 134 142 145 158 160 160 146 0.8 -8.6 EBITDA Margin (%)
Petchem 21.0 22.0 21.1 21.0 23.6 22.0 21.2 22.6
Refining 12.1 12.3 10.8 8.6 7.5 7.5 6.6 7.2
Oil & Gas 17.9 26.8 62.9 54.4 64.7 52.3 84.7 49.6
Total 14.6 15.4 14.6 12.9 13.0 12.7 11.8 13.1
Segmental EBIT
Petchem 40 49 57 63 77 80 80 78 23.3 -2.2 Refining 64 65 61 56 52 52 49 40 -28.0 -18.6 Oil & Gas -2 -1 -1 -4 -2.5 -1.9 1.2 1.0 -123.1 -19.3 Others 1 1 1 1 0 0 0 0 -82.4 -56.8 Total 103 115 118 116 128 130 131 120 2.9 -8.7 EBIT Margin (%)
Petchem 16.5 18.3 17.4 17.2 19.9 18.5 17.6 18.9
Refining 10.8 11.0 9.5 7.5 6.4 6.3 5.6 5.9
Oil & Gas -39.7 -12.6 -12.1 -68.0 -32.5 -25.3 19.7 18.5
Total 12.2 13.2 12.1 10.4 10.5 10.3 9.7 10.7
Operating Metrics
Refining (USD/bbl)
RIL GRM 11.9 12.0 11.6 11.0 10.5 9.5 8.8 8.2 -25.5 -6.8 Singapore GRM 6.4 8.3 7.3 7.0 6.0 6.1 4.3 3.2 -54.1 -25.6 Premium 5.5 3.7 4.3 4.0 4.5 3.4 4.5 5.0 24.1 11.1 Refinery Thr' put (mmt) 17.5 18.1 17.7 16.7 16.6 17.7 18.0 16.0 -4.2 -11.1 Utilization (%) 113 117 114 108 107 114 116 103
Petrochemicals
Polymer (TMT) 978 1,186 1,273 1,466 1,421 1,408 1,489 1,466 0.0 -1.5 Polyester (TMT) 664 600 624 702 715 740 697 725 3.3 4.0 Polyester Int. (TMT) 2,242 2,228 2,347 2,527 2,504 2,754 2,854 2,527 0.0 -11.5 E&P
Gross Oil Prodn (tmt)
PMT 180 191 180 177 151 149 145 134 -24.4 -7.7 KG-D6 31 25 25 23 19 15 0 0 NM NM Total 211 216 205 201 171 164 145 134 -33.1 -7.7 Gross Gas Prodn (mmscmd)
PMT 4.6 5.3 4.7 4.7 4.3 4.0 4.1 3.9 -16.8 -4.9 KG-D6 6.4 5.5 5.0 4.3 4.1 3.7 1.9 1.8 -57.3 -2.7 Total 11 11 10 9 8 8 6 6 -36.1 -4.2 Shale production (bcfe) 34.7 33.5 32.4 34.7 23.8 21.2 20.9 18.9 -45.5 -9.6
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Key takeaways from analyst meet Refining & marketing: GRM of USD8.2/bbl The company guides that against incremental demand of 1.4mnbopd in 2019, global incremental refining capacity is expected at 1.8mnbopd. Next year, incremental refining capacity addition is expected at 0.8mnbopd. Production cut from OPEC+ and a decline in production from Venezuela and Iran have resulted in lower supply of heavy crude. On the other hand, production of light crude oil has increased in the US, resulting in tightening of light-heavy differentials. Retail diesel sales +16% YoY, petrol +21% YoY. Total 1,372 ROs are operational.
Petrochem: Production volumes affected by shutdown in PP and LDPE Indian polymer demand has grown by 6% in 4QFY19, while polyester demand has grown by 10%. Total production stood at 9.4mmt, down from 9.7mmt in 3QFY19. PP, HDPE and PVC deltas declined sequentially. Integrated polyester margins also declined QoQ.
E&P: R-series by 2HFY21 R-cluster progress as planned – drilling completed for four out of six wells, drilling of fifth well ongoing. Expect first gas by 2HFY21. Satellite cluster development – all major orders have been placed. Bid evaluation for MJ under progress.
Miscellaneous Consol. gross debt of INR2,875b: RIL standalone – INR1,620b, Jio – INR670b, RIL USA – INR350b and Retail – INR130b, rest for others; creditors for capex stands at INR580b. Consol. cash stands at INR1,330b. Capex of INR327b in 4QFY19; INR215b on Jio, INR40b on RIL standalone, INR20b in retail, rest in others.
Exhibit 2: Refining share continues to decrease, 4QFY19 share stood at ~34% in standalone EBIT Petrochem Refining E&P Others 1 1 1 1
48 41 40 38 34 62 57 52 68 62 65 64
61 62 61 65 48 55 39 43 30 37 35 35
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL
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No sign of reducing competitive intensity Demerges tower/fiber assets in quest of asset monetization
Growth slows down RJio’s growth momentum has slowed relative to the last 3-4 quarters due to 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 a marginal 1% QoQ increase in PAT to INR8.4b (8% miss).
Subscriber adds healthy; run-rate seeing deceleration though Net subscriber adds for the quarter stood at a healthy 26.6m, i.e. 8.9m on a monthly basis, lower than 9.3m in 3QFY19. For FY19, RJio added 138m/120m gross/net subscribers, taking the count to 306.6m. We estimate net smartphone and feature monthly subscriber adds at ~5m and ~4m, respectively. Monthly subscriber churn remains moderate at 0.75% v/s 0.61% in 3QFY19. Management attributed the 3% fall in ARPU to INR126 to (a) lower number of days during the quarter and (b) higher adoption of the subsidized INR99 plan by the Jiophone subscribers. Yet, RJio’s ARPU is higher than incumbents – Bharti and Vodafone Idea’s 4QFY19 estimated ARPU of INR119 and INR105, respectively. Total wireless data traffic increased 11% QoQ to 9.6bGB; usage per sub per month, however, stood flat at 10.9GB. Total voice traffic grew at a faster pace though, up 14% QoQ to 724b min; off-net traffic estimated at 25%.
No thoughts on ARPU increase; focus to grow subscribers Given the strong subscriber growth, high churn seen in incumbents’ subscriber base and the huge opportunity in the feature phone category, we continue to see focus on subscriber growth over ARPU increase. We have subsequently factored in 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 network capability would have significantly ramped up too, thus shifting the focus on ARPU growth. Subsequently, in FY21, we expect ARPU growth of 10% to INR139 and meager 17m subscriber addition.
Aliasgar Shakir RJio equity value reduced 10% to INR230/share on higher debt ([email protected]) 022 61291568 For FY20, we have revised down our EBITDA estimates by 11% due to an increase in Hafeez Patel cost attributed to fiber and tower demerger (explained in detail below), but expect ([email protected]) PAT to remain largely unchanged due to a corresponding decline in depreciation. For 022 61291565 FY21, we have revised EBITDA upward by 3% and PAT by 2.4x on a low base, given the expectation of a reversal in the 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 at 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).
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Hiving off tower and fiber asset in an InvIT SPV RJio announced hive off of its fiber and tower assets to an InvIT SPV, shifting assets with book value of INR1,250b (fair value of INR2,030b) to the SPV. Broadly in our opinion, this should pull down FY20 EBITDA by 11%, but stay PAT neutral. 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. The debt has increased by ~INR600b to INR2,532b (FY19) as the OCPS amount earlier accounted in RJio’s equity capital has been shifted as borrowings in the SPV’s balance sheet. Since the SPV is yet to fetch an external investor or tenant, we include it as part of RJio debt.
What does it bring on the table? The SPV would get hold of 700k route km of fiber, which will be increased to 1100k km with an average age of less than three years and architecture for FTTx and 5g technologies. It also has 175k built and under developed towers with an average age of less than two years which are predominantly ground-based and mostly include fiber backhaul.
The structure of the demerger RJio has shifted its liabilities to the tune of INR1,070b to the SPV, of which there are optionally convertible preference shares (OCPS) worth ~INR600b, while the rest is debt. Given the higher market value of the assets at INR1650b (vs book value), the SPV has issued INR780b of preference shares to RIL. These are zero yield shares and will be serviced through the upside earnings potential from fresh fiber/tower tenancies (over and above RJio) after servicing the INR1,070b loans of the SPV. Management indicated that the rate of loans is 8.5-9.5%, implying minimum annual cost of INR96b for the loans on SPV.
Who pays the InvIT? Currently, RJio has the anchor contracts for the towers as well as 50% fiber pairs with 20-year contractual arrangement. Based on the pricing mechanism for the asset usage, we estimate that RJio would pay an additional INR66b out of the total interest obligation of INR96b to the SPV, which would be ~70% of the total interest obligation. We believe the rest of the amount, it would endeavor to generate from third party by renting the network. This would save nearly 30% - INR30b annually, if the debt would be sitting on RJio’s balance sheet.
What would change in RJio’s books of accounts? We believe RJio’s network cost in FY20 should go up by INR66b v/s FY19 based on the cost of tenancies from the SPV, while the rest of the amount toward the SPV’s debt servicing may come from RJio/RIL as advances until it gets an additional tenant. We assume the SPV’s debt as an extension of RJio loans, until it receives an additional tenant. On FY19 debt of INR1,463b, incremental SPV debt of INR1,070b works out total debt of INR2,532b. This is ~INR600b higher than our earlier FY19 estimates as the OCPS (shifted to SPV debt) was earlier accounted in RJio’s equity base. This should correspondingly reduce the depreciation cost as the assets are shifted to the SPV. We have increased RJio’s FY20 interest cost by INR13b assuming an interest cost of 7.2% (excluding financial liabilities). On PAT level, we expect FY20 to remain neutral as the increase in network cost should be offset by the lower depreciation cost.
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RJio analyst meet takeaways Operational metrics Recorded 33.2m gross subscriber adds in 4QFY19 and 138.1m for FY19. Net subscriber adds for 4Q stood at 26.6m. Decline in ARPU to INR126 was partly due to (a) lower number of days during the quarter and (b) higher adoption of INR99 plan (INR85 net of taxes) by Jiophone subs, who gradually upgrade to higher plans. Total data traffic for 4Q stood at 9.6b Gb; usage per sub per month stood at 10.9Gb; total voice traffic for 4Q stood at 8.05b min/day. RJio’s network carried ~71% of 4G data traffic in India during CY18. RJio caters 4-5x of the VoLTE traffic of all other players put together. As on Dec-18, RJio’s MBB market share stands at 56%; 65% of the 4G subs market share. RJio’s AGR market share is expected to be ~40% by Mar-19. As on Dec-18, RJio stood first in 13 circles and second in rest of the circles in terms of AGR share, with close number three position in Kolkata. RJio added 1 BTS/min (+small cells and Wifi points). Company continues to do trials on FTTH (Launched for Enterprise, not yet for Home).
Financial metrics CWIP of INR300b which includes last mile fiber and some of the electronics and spectrum related assets which are pending to be deployed. This will be retained by RJio and not transferred to the separate entities. Gross debt stands at INR670b, while capex for the quarter stood at INR215b.
Hathway & Den Acquisition Update RIL and affiliates now hold 72.0% equity stake in Hathway Cable & Datacom Ltd. and 78.1% equity stake in Den Networks. Both Hathway Cable & Datacom Ltd and Den Networks are being ran by the same management team. RJJio presently has a combination of strategy for broadband rollout, where RJio is using the assets and capabilities of these companies as a vehicle of increasing penetration and also ramping up penetration individually.
Digital Connectivity Using its digital connectivity as the backbone for Tech platforms. New commerce – launch of O2O platform and enabling 20m small merchants to compete with organized retail. Education - connect 58k colleges and 1.9m schools. Healthcare. Agriculture space. JioSaavn has gone live through ad and subscription based revenue model. It is also the largest content producer. Jio is partnering and investing with many small entrepreneurs across digital/network space, including companies like Reverie, Radisys, Embibe, Grab, GSquare, Easy Goy, Haptik etc.
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Given the strong traction and demand for FTTH, initial target of 1,100 cities rollout has now been extended to 1,600 cities. As per TRAI, rural broadband penetration is at ~19%. This indicates that there is still a long way to go for growth through market share in many rural areas.
Tower & Fiber demerger update Completed transfer of fibre and tower undertaking to separate companies. This has resulted in liability reduction of INR107k core for RJio. Strategy for the transfer was (a) to focus on digital business and hive of capital intensive infrastructure assets which have different business models, (b) substantial deleveraging and (c) monetization of assets. Issued INR780b worth of preference shares (marketable securities) to RIL. Majority equity share capital of the SPVs transferred to separate SEBI registered infrastructure Investment Trusts. ~7lac route km of built and under development fibre has an average age of less than 3 years; targeted to increase to ~11lac route km. Fibre assets are architectured for 5G and will be very useful for not just telcos but also for ISPs/enterprise players and other network players. ~1,75,000 of built and under development towers have an average age of less than 2 years. Most of the towers are with fiber backhaul and are predominantly GBT (ground based towers) which can take multiple tenancy. These have EB connectivity and lithium battery back-up. Difference between fair value (INR1650b) and cost price of JDFPL is allocated as preference shares to RIL, which will be serviced by incremental cash flows from third-party tenants. Apart from telcos, there are many ISPs that need fiber for offering enterprise, WiFi and other network services. Some of these have already reached out to RJio and have limited conflicting business. For eg: there are DPOs which want to transfer content on fiber instead of satellite (content distribution). RJio would remain anchor tenant in all towers; long-term anchor contract for 50% fiber pairs. (rest 50% can be given to other operators). It would receive RoFR and preferred SLA terms; Discount in tower rentals due to third party tenancies through transparent pricing mechanism. Towers have restrictive use currently, as it is primarily used by telcos. But still, given that large part of the towers is backhaul, it will have a compelling proposition. At some point, they may have to increase their network beyond their current locations and therefore may require tenancies from RJio. The cost incurred by RJio towards the infrastructure rental cost should come above EBITDA. Debt on the books of SPVs is at 8.5%-9.5% cost of debt with different maturity. Some of them may get refinanced depending upon their maturity. There is no recourse to the liabilities transferred to the SPVs by RJio.
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Exhibit 3: RJio - DCF valuation (INR b) Particulars FY20E FY21E FY22E FY23-30E EBITDA 203 328 361 3,775 Capex 200 148 148 768 FCFF (pre-tax) 3 180 213 3,007 Tax -16 -30 -48 -967 FCFF (post tax) -14 150 166 2,040 Terminal Value 5,345 Cashflow after Terminal Value -14 150 166 7,385 NPV (INR b) 3,894 Particulars Terminal growth rate 5% Enterprise value (INR b) 3,894 Net debt (INR b) 2,533 Equity value (INR b) 1,362 No of shares (b) 5.9 Target price (INR) 230 Source: Company, MOFSL
Exhibit 4: RJio - Quarterly earnings model (INR m) Y/E March FY18 FY19 FY18 FY19 4Q Est. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q FY19E Var (%) Revenue 0 61,471 68,794 71,280 81,091 92,400 1,03,830 1,11,060 2,01,545 3,88,380 1,15,110 -3.5 YoY Change (%) NA NA NA NA 50.3 50.9 55.8 NA 92.7 61 Total Expenditure 315 47,053 42,524 44,349 49,630 56,680 63,310 67,800 1,34,240 2,37,420 69,825 -2.9 EBITDA -315 14,418 26,270 26,931 31,460 35,720 40,520 43,260 67,304 1,50,960 45,284 -4.5 Margins (%) NA 23.5 38.2 37.8 38.8 38.7 39.0 39.0 33.4 38.9 39.3 -39bp Depreciation 12 11,839 11,926 11,988 14,394 15,310 16,840 17,440 35,765 63,980 18,805 Finance Cost 1 6,734 6,638 7,113 7,676 9,960 10,910 12,940 20,486 41,480 12,386 Other Income 3 17 12 7 14 10 10 30 39 60 0 PBT -325 -4,138 7,718 7,837 9,405 10,460 12,780 12,910 11,091 45,560 14,093 -8.4 Tax -113 -1,432 2,674 2,732 3,286 3,650 4,470 4,510 3,862 15,920 4,933 Rate (%) 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% PAT -213 -2,706 5,044 5,104 6,119 6,810 8,310 8,400 7,230 29,640 9,161 -8.3 Margins (%) NA -4.4 7.3 7.2 7.5 7.4 8.0 7.6 3.6 7.6 8 YoY Change (%) NA NA NA NA NA NA 65% 65% LP 310% 79% Source: MOFSL, Company
Exhibit 5: QoQ financial performance (INR m) Particulars 4QFY18 3QFY19 4QFY19 YoY% QoQ% 4QFY19E Var (%) Revenue from operations 71,280 1,03,830 1,11,060 55.8 7.0 1,15,110 -3.5 Operating expenses 44,349 63,310 67,800 52.9 7.1 69,825 -2.9 EBITDA 26,931 40,520 43,260 60.6 6.8 45,284 -4.5 EBITDA margin (%) 37.8 39.0 39.0 117bps -7bps 39.3 -39bps Depreciation and amortization 11,988 16,840 17,440 45.5 3.6 18,805 -7.3 EBIT 14,943 23,680 25,820 72.8 9.0 26,479 -2.5 EBIT margin (%) 21.0 22.8 23.2 229bps 44bps 23.0 25bps Finance Costs 7,113 10,910 12,940 81.9 18.6 12,386 4.5 Other income 7 10 30 354.5 200.0 0 - Profit before Tax 7,837 12,780 12,910 64.7 1.0 14,093 -8.4 Tax 2,732 4,470 4,510 65.1 0.9 4,933 -8.6 Tax rate (%) 34.9 35.0 34.9 7bps -4bps 35.0 -7bps
Profit after Tax 5,104 8,310 8,400 64.6 1.1 9,161 -8.3 Source: MOFSL, Company
19 April 2019 10 Reliance Industries
Exhibit 6: RJio: KPI comparison Particulars 4QFY18 3QFY19 4QFY19 YoY% QoQ% 4QFY19E Var (%) Subscribers (m) 186.6 280.1 306.7 64.4 9.5 316.1 -3.0 Net subs adds 26.5 27.8 26.6 0.4 -4.3 36.0 -26.1 Gross sub adds 27.9 32.7 33.2 19.0 1.5 Churn per month (%) 0.3% 0.6% 0.8% 50bp 14bp ARPU (INR/sub/month) 137 130 126 -8.0 -2.9 129 -2.0 Total wireless Data traffic (cr GB) 504 864 956 89.5 10.6 995 -3.9 Wireless Data traffic per sub (GB/mth) 9.7 10.8 10.9 12.0 0.4 11.1 -2.3 Voice on Network (b min) 372 634 724 94.6 14.2 710 2.0
Voice consumption per sub (min/mth) 716 794 823 14.9 3.6 794 3.6 Source: MOFSL, Company
Exhibit 7: ARPU reconciliation Revenue Average subs ARPU Subscriber category (INR m) (m) (INR) Smartphone Subs 1,05,188 226.7 155 Jiophone Subs 5,598 66.7 84 Prime Subscription 274 33.2 8
Total 1,11,060 293.4 126 Source: MOFSL
Exhibit 8: Subscriber working (m) Particulars 4QFY19 Subscribers 306.7 Net Adds 26.6 Monthly Churn (%) 0.75% Gross Subscriber adds 33.2 Smartphone adds 15.0
Jiophone Subs 11.6 Source: MOFSL
Exhibit 9: RJIo’s debt reconciliation with InvIT’s SPV Particulars Pre FY19 FY19 Change Equity 1,060 404 656 Debt 1,773 1,479 294 Total 2,833 1,883 949 Additional Capex in 4QFY19 121 Total Liabilities transferred 1,070 Source: MOFSL, Company
Exhibit 10: RJio’s revenue market share (incl. NLD) stands at Exhibit 11: RJio’s active subscriber market share stands at ~30% as on Dec-18 (%) ~24% as on Feb-19 (%) Bharti Vodafone Idea RJio Bharti Reliance Jio Other players Vodafone-Idea Other players 50 45.0%
40 35.0% 30 25.0% 20 10 15.0% 0 5.0% Jul-17 Jul-18 Jan-18 Jan-19 Oct-17 Oct-18 Apr-17 Apr-18 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 Source: TRAI , MOFSL Source: TRAI, MOFSL
19 April 2019 11 Reliance Industries
Exhibit 12: RJio: Subscriber base increasing continually Exhibit 13: RJio: EBITDA margins steady at 39% (%)
Subscribers (m) ARPU (INR) Revenue (INR b) EBITDA margins (%)
156 154 38.2 37.8 38.8 38.7 39.0 39.0 137 135 132 130 126 23.5
138.6 160.1 186.6 215.3 252.3 280.1 306.7 61 69 71 81 92 104 111 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 14: RJio: Pace of net subscriber adds slowing QoQ (m) Exhibit 15: RJio: Monthly churn stood at 0.75%
Net subs adds (m) Gross subs adds (m) Monthly churn 1.40% 41.7 1.00% 32.7 33.2 0.75% 30.5 0.66% 0.61% 27.8 27.9 0.25% 0.30% 15.2 21.5 26.5 28.7 37.0 27.8 26.6 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 16: RJio: Data traffic grew 11% QoQ in 4Q Exhibit 17: RJio: Voice traffic grew 14% QoQ in 4Q
Data traffic (b GB) QoQ growth (%) Voice traffic (b min) QoQ growth (%) 27% 27% 20% 20% 21% 17% 19% 19% 14% 14% 12% 11%
3.8 4.3 5.0 6.4 7.7 8.6 9.6 246 311 372 449 534 634 724 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 18: RJio’s prepaid price plans during 4QFY19 (INR) 49* 98** 99* 149 153* 198 299 349 398 399 448 449 498 Validity (days) 28 28 28 28 28 28 28 70 70 84 84 91 91 Effective mthly ARPU (post GST) 43 86 87 131 125 174 263 123 140 117 131 121 135 GB (daily) 0.04 0.07 0.50 1.5 1.5 2.0 3.0 1.5 2.0 1.5 2.0 1.5 2.0 *Jiophone plans; **Data for 28 days Source: MOFSL, Company
19 April 2019 12 Reliance Industries
Exhibit 19: InvIT structure
Source: MOFSL, Company
Exhibit 20: Pro forma balance sheet of JDFPLP and RJIPL JDFPL RJIPL Total Assets 1,664 368 2,033
Share Capital Equity Shares 5 2 7 Preference Shares (Marketable Security) 781* 1 782 Liabilities Bank borrowings 270 110 380^ Other liabilities 190 137 327^ RIL NCDs 248 118 366^@ Advance paid by Jio 170 0 170 Total Liabilities 1,664 368 2,033 RJIL - Reliance Jio Infocomm Limited; JDFPL - Jio Digital Fibre Private Limited; RJIPL - Reliance Jio Infratel Private Limited * Difference between fair value and cost price allocated as Preference Shares to RIL ^ Liability transfer from RJIL: Rs 107K crore @ RIL NCDs to get repaid through units issuance of the Trusts Source: MOFSL, Company
19 April 2019 13 Reliance Industries
Exhibit 21: RJio: Summary of estimate change FY19 FY20E FY21E Revenue (INR b) Old 392 547 646 Actual/New 388 541 691 Change (%) -1.0 -1.2 6.9 EBITDA (INR b) Old 153 230 318 Actual/New 151 203 328 Change (%) -1.3 -11.9 3.2 EBITDA margin (%) Old 39.0 42.0 49.2 Actual/New 38.9 37.5 47.5 Change (bp) -11bps -456bps -173bps Net Profit (INR b) Old 30 31 16 Actual/New 30 31 55 Change (%) -2.5 -0.8 241.1 EPS (INR) Old 0.7 0.7 0.4 Actual/New 0.7 0.7 1.2 Change (%) -2.5 -0.8 241.1 Source: MOFSL, Company
Exhibit 22: RJio: Revenue and EBITDA margin to expand
Revenue (INR b) EBITDA margin (%) 47.5 38.9 37.5 33.4
202 388 541 691
FY18 FY19 FY20E FY21E
Source: MOFSL, Company
Exhibit 23: ARPU recovery to be prolonged Exhibit 24: FCF to turn positive in FY21 (INR b)
Subs (m) ARPU (INR) 144 655 139
131 145 126 106
-15 187 307 406 422 -322 FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY22E
Source: MOFSL, Company Source: MOFSL, Company
19 April 2019 14 Reliance Industries
Exhibit 25: RJio: Return ratios to rise (%) Exhibit 26: RJio: Net debt to EBITDA to decline (x)
20.0 RoE (%) RoCE (%) RoIC (%) Net Debt / EBITDA (x) 21.1 15.0
10.0 9.7 7.7 5.0 4.9
0.0 FY18 FY19 FY20E FY21E FY22E FY18 FY19 FY20E FY21E
Source: Company, MOFSL Source: Company, MOFSL
19 April 2019 15 Reliance Industries
REFINING: Sequentially lower GRM and throughput GRM at USD8.2/bbl v/s benchmark GRM of USD3.2/bbl
Exhibit 27: RIL’s premium over benchmark stood at USD5.0/bbl in 4QFY19 RIL's GRM premium over SG Brent less Dubai Arab L-H 3.2 2.9 2.9 2.9 2.6 2.9 2.2 2.3 2.3 2.2 1.5 1.4 3.0 2.5 2.6 2.3 2.6 1.6 0.9 0.5 0.9 (0.1) (0.1) (0.2)
6.5 5.0 4.1 5.1 5.5 3.7 4.3 4.0 4.5 3.4 4.5 5.0
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Exhibit 28: Standalone refining EBIT declined YoY/QoQ 13.4 Refining EBIT (INRb) EBIT Margins (%) 11.4 11.5 10.8 11.0 9.8 9.5 7.5 6.4 6.3 5.6 5.9
66 59 61 63 64 65 61 56 52 52 49 40
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Exhibit 29: 4QFY19 GRM at USD8.2/bbl; premium of USD5.0/bbl Singapore GRM Premium / (Disc) RIL GRM 11.5 11.5 11.9 12.0 11.6 10.8 11.0 10.5 10.1 9.5 3.7 8.8 4.3 8.2 4.1 5.1 5.5 4.0 6.5 5.0 4.5 3.4 4.5 5.0 8.3 6.7 6.4 6.4 7.3 7.0 5.0 5.1 6.0 6.1 4.3 3.2
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Exhibit 30: Refinery throughput down YoY to 16.0mmt due to planned shutdown, utilization at 103% Refinery Thr' put (mmt) Utilization (%) 116 117 116 115 114 114 113 113 108 108 107 103
16.8 18.0 17.8 17.5 17.5 18.1 17.7 16.7 16.6 17.7 18.0 16.0
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL
19 April 2019 16 Reliance Industries
PETROCHEM: Robust volume growth and healthy margins drive profitability Standalone EBIT increased 23% YoY; EBIT share at 65%
Exhibit 31: Standalone EBIT up 23% YoY; margins improve YoY/QoQ to 18.9% Petchem EBIT (INRb) EBIT Margins (%) 19.9 18.3 18.5 18.9 17.4 17.2 17.6 16.3 16.5 14.9 15.5 13.7
29 35 34 35 40 49 57 63 77 80 80 78
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL
Exhibit 32: Petrochem volume decreases due to shutdown in PP & LDPE units Polymer (mmt) Polyester (mmt) Polyester Interm. (mmt)
2.9 2.5 2.5 2.8 2.5 2.2 2.3 1.7 2.2 1.5 1.7 1.9 0.7 0.7 0.7 0.7 0.7 0.6 0.5 0.6 0.6 0.6 0.7 0.6 1.5 1.4 1.4 1.5 1.5 1.1 1.2 1.1 1.1 1.0 1.2 1.3
1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 Source: Company, MOFSL
19 April 2019 17 Reliance Industries
E&P: KG-D6 production decline continues Domestic E&P continues to decline
Exhibit 33: KG-D6 gross production averaged 1.8mmscmd in 4QFY19
KG-D6 Gross Gas (mmscmd)
8.7 7.7 7.5 7.4 6.4 5.5 5.0 4.3 4.1 3.7 1.9 1.8 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL
Shale gas also weakens RIL’s shale gas revenue stood at USD62m (v/s USD105m in 4QFY18 and USD78m in 3QFY19), while EBITDA stood at a loss of USD8m. RIL’s production share in shale JVs stood at 18.9bcfe (v/s 34.7bcfe in 4QFY18).
Exhibit 34: Shale gas EBITDA declined QoQ Revenues (USDm) 112 105 EBITDA (USDm) 93 94 98 89 92 86 80 81 78 62 40 40 38 30 32 23 24 13 19 13
(1) (8) 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 Source: Company, MOFSL
Exhibit 35: RIL production down 45% YoY (RIL’s share, bcfe) 44.5 41.4 Shale gas vol, net (bcfe) 37.5 39.1 34.7 33.5 32.4 34.7 23.8 21.2 20.9 18.9 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL
19 April 2019 18 Reliance Industries
Reliance Retail: Stellar performance
4QFY19 performance Total revenue grew 52% YoY to INR366.6b, mainly on the back of strong growth in core and connectivity segments. Core revenue witnessed a robust 51% YoY jump to INR208.6b primarily led by 16% YoY increase in store network; Connectivity revenue was up 61% YoY to INR120.7b Within core segment: Grocery revenue saw a robust 68% YoY jump, while Fashion & Lifestyle revenue was up 62%; Consumer Electronics grew 39% YoY. Total EBITDA grew 77% YoY to INR19.2b; margins expanded 75bp YoY to 5.2%. Core EBITDA was up 83% YoY to NR15.9b; margins expanded 130bp YoY to 7.6%. Count of core retail stores grew 16% YoY to 4,460 (+623 new stores YoY); total stores count grew 38% YoY to 10,415 stores (+2,842 new stores YoY). Operates 676 Trends stores; 566 Reliance Fresh, Smart and Qwikmart stores; 42 Reliance Market stores.
FY19 performance Revenue/EBITDA grew 89%/145% YoY to INR1,305b/INR62b; margins expanded 100bp YoY to 4.7%.
Reliance Retail analyst meet takeaways Operational metrics SSSG for Grocery segment is upwards of 25-28%; 25% for Fashion segment and 40% for Consumer Electronics segment. Added 2,829 stores during the year; now operates 10,415 stores covering over 22 m sq.ft. of retail space. Reliance Retail now operates over 8,000 Digital and Jio stores. Company added over 200 Trends & Trends Extension stores during the year (including 65 small town Trends stores) and now operates 676 Trends stores across 350 cities. Added 76 Reliance digital stores and 2,219 Jio stores during the year. Opened 54 Reliance Smart stores and 17 Fresh stores during the year. Added 3 Reliance Market stores during the year and now operates a total of 46 Reliance Market stores. Recorded 500m footfalls during FY19, growth of 44% YoY. Extended physical store presence to 6,600+ cities across India. Loyalty customer base stands at 50m. Reliance Retail caters across market from value apparel/fashion to premium and luxury segment. Reliance Retail has a portfolio of over 40 brands from mid-to-premium to luxury segment. Partner Brands occupy >20% of retail store space in top malls of India. 20 project eve store formats opened which cater to mid to premium pricing. Some of the stores have salon and food cafés. Reliance Retail has over 300 big box retail stores and will be adding 60 more.
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Reliance Industries
Financial metrics FY19 EBITDA stood at INR62b with 100bp margin improvement to 4.7% Core EBITDA margin stood at 7% for FY19 v/s 6% in FY18; 7.6% for 4QFY19 v/s 6.3% in 4QFY18 Fashion and Lifestyle segment crossed INR100b revenue mark in FY19. Reliance Retail debt stands INR130b. Capex for the quarter stood at INR20b. This is mainly towards new stores, refurbishments, product and format improvements.
Industry Consumer electronics has very low penetration across products v/s global/China market. India’s per capita apparel consumption is 1/5th of China. At 440m, India has the largest millennial population. These form 48% of the workforce v/s 25% for Asia Pacific region.
Exhibit 36: Quarterly performance (INR m) 4QFY18 3QFY19 4QFY19 YoY% QoQ% Revenue from operations 2,41,830 3,55,770 3,66,630 51.6 3.1 a) Core Revenue 1,37,843 1,99,231 2,08,575 51.3 4.7 - Grocery 41,111 60,481 68,900 67.6 13.9 - Consumer Electronics 74,967 1,10,289 1,04,468 39.4 -5.3 - Fashion and Lifestyle 21,765 28,462 35,208 61.8 23.7 b) Connectivity 74,967 1,20,962 1,20,715 61.0 -0.2 c) Petro Retail 29,020 35,577 37,340 28.7 5.0 EBITDA 10,860 16,800 19,230 77.1 14.5 EBITDA margin (%) 4.5% 4.7% 5.2% 75bps 52bps Core EBITDA 8,684 14,345 15,852 82.5 10.5 Core EBITDA margin 6.3% 7.2% 7.6% 130bps 40bps EBIT 9,510 15,120 17,210 81.0 13.8 EBIT margin (%) 3.9% 4.2% 4.7% 76bps 44bps PBDIT 10,860 16,800 19,230 77.1 14.5 Source: Company, MOFSL
Exhibit 37: Operational metrics (INR m) 4QFY18 3QFY19 4QFY19 YoY% QoQ% Area (m sqft) 18 21 22 24.3 6.8 Total Retail Stores (ex- Petro) 7,573 9,907 10,415 37.5 5.1 Jio Points 3,736 5,705 5,955 59.4 4.4 Core retail stores 3,837 4,202 4,460 16.2 6.1 Source: Company, MOFSL
19 April 2019 20 Reliance Industries
Exhibit 38: Reliance Retail: Total revenue grew 52% YoY to Exhibit 39: Contribution from consumption baskets – INR367b revenue mix Grocery Consumer Electronics Revenue (INR b) EBITDA margin (%) Fashion & Lifestyle Connectivity 5.2% Petro Retail 4.5% 4.7% 4.7% 4.3% 12% 12% 9% 10% 10% 3.4% 3.2% 3.0% 31% 33% 34% 34% 33% 9% 9% 7% 8% 10% 31% 27% 33% 31% 29% 116 146 188 242 259 324 356 367 17% 19% 17% 17% 19% 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Source: Company, MOFSL Source: Company, MOFSL
Exhibit 40: Reliance Retail store count by region North South East West Total 10,415 9,907 9,146 8,533 7,573 2712 2853 2480 2,314 2,068 2230 2299 1,910 2062 1,635 2478 2687 2869 2,130 2,355
1,740 1,954 2126 2278 2394
4QFY18 1QFY19 2QFY19 3QFY19 4QFY19
Excludes Petro Outlets Source: Company, MOFSL
Valuation and view RIL guides that incremental refining capacity addition would stand at 1.8mnbopd in 2019 compared with incremental oil demand of 1.4mnbopd. IEA’s estimates are even aggressive for capacity addition at 2.6mnbopd against lower incremental demand of 1.1mnbopd. This expansion in supply glut is likely to keep refining margins under pressure. Additionally, due to production cuts from OPEC+ and lower production from Venezuela and Iran, combined with higher production of light oil from the US, would keep light-heavy differential under pressure. We value RIL’s refining and petrochem segments at 7.5x FY21 EV/EBITDA. Global peers trade at 5.8-6.0x FY20. The higher multiple than global peers takes into account higher capacity utilization, better yield management, crude optimization, risk management and multiple feedstock availability for the petrochem segment. RJio equity value reduced by 10% to INR230/share on higher debt For FY20E, we have revised down our EBITDA estimates by 11% due to increase in cost attributed to fiber and tower demerger (explained in detail below), but expect PAT to remain neutral as depreciation should see corresponding cost decline. In FY21, we have revised up EBITDA by 3% and PAT by 2.7x on a low base, given the expectation of reversal in ARPU trends. However, we must emphasize that our forecast remain fluid as there is yet limited cash flow data available related to the fiber and tower demerger. We have reduced our DCF-
19 April 2019 21 Reliance Industries
based TP at INR230 (vs 255 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 consolidated EPS of INR70.7 and EV/EBITDA of 11.2x. Our SOTP-based fair value stands at INR1,431/share. Maintain Neutral.
Exhibit 41: RIL- Key assumptions Key Metrics FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Exchange Rate (INR/USD) 60.5 61.2 65.4 67.1 64.5 65.1 71.8 73.6 Refining Capacity (mmt) 62.0 62.0 62.0 62.0 62.0 62.0 62.0 62.0 Production (mmt) 68.1 67.9 69.5 70.1 70.0 69.1 70.0 70.0 Capacity Utilization (%) 110% 110% 112% 113% 113% 111% 113% 113% GRM (USD/bbl) Singapore GRM 5.6 6.4 7.5 5.8 7.3 7.2 6.0 6.1 Premium/(disc) 2.8 2.5 3.3 5.2 4.4 4.1 4.3 4.5 RIL GRM 8.5 8.8 10.8 11.0 11.6 11.3 10.3 10.5 E&P Gas Production (mmscmd) 13.8 12.2 8.4 7.8 5.3 4.7 1.5 1.3 Oil Production (kbd) 6.4 6.6 4.9 3.4 2.1 1.8 - - Petchem Net sales (mmt) 7.5 7.5 8.2 8.1 10.9 11.6 14.0 14.0 EBITDA/mt (USD) 241 256 266 315 362 391 375 350 Pricing Brent Oil (USD/bbl) 109 86 48 49 58 64 70 70 Wellhead Gas Price (USD/mmbtu) 4.2 4.2 4.2 3.2 3.4 3.4 3.4 4.2 Source: Company, MOFSL
19 April 2019 22 Reliance Industries
Exhibit 42: RIL: Segmental EBITDA break-up (INRb) Segmental EBITDA (INRb) FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Refining 176 187 265 284 277 267 250 265 Petchem 110 118 143 171 256 297 394 397 E&P 40 37 28 10 11 15 (3) (4) Total 326 342 436 465 544 579 640 659 Segmental EBITDA share (%) Refining 54 55 61 61 51 46 39 40 Petrochemicals 34 35 33 37 47 51 62 60 E&P 12 11 6 2 2 3 (1) (1) Total 100 100 100 100 100 100 100 100 Source: Company, MOFSL
Exhibit 43: RIL: Sum of the parts valuation Sum of the parts (on FY21 basis) Value Remarks/Methodology Core business Refining 336 7.5x FY21 EBITDA Petchem 504 7.5x FY21 EBITDA E&P 24 Investments Reliance Retail 402 RJio 230 DCF Total 1,496 Net debt / (cash) 65 Standalone net debt Target price 1,431
19 April 2019 23 Reliance Industries
Reliance Industries: Story in charts
Exhibit 44: RIL’s standalone earnings continue increasing Exhibit 45: Return ratios PAT (INRb) PAT - YoY (%) RoCE (%) RoE (%) 20.7 11.7 11.7 14.6 11.6 11.0 11.1 7.0 7.7 4.7 3.3 4.6 5.2 9.8 9.0 8.8
9.2 9.1 9.2 8.9 8.7 8.2 8.4 7.9 220 227 274 314 336 352 379 398
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Source: Company, MOFSL Source: Company, MOFSL
Exhibit 46: Refinery throughput to remain at 70mmt in FY20/21; GRM to stabilize around ~USD10.5/bbl Refinery Thr' put (mmt) RIL GRM (USD/bbl)
11.0 11.6 11.3 10.8 10.3 10.5 8.5 8.8
68.1 67.9 69.5 70.1 70.0 69.1 70.0 70.0
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, MOFSL
Exhibit 1: Expect Petchem EBITDA contribution to increase going forward, followed by refining 659 Refining Petchem E&P Total 640 579 544 15 465 436 11 10 394 397 326 342 28 256 297 171 143 40 37 110 118 265 284 277 267 250 265 176 187 (3) (4) FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Source: Company, MOFSL
19 April 2019 24 Reliance Industries
Reliance Industries: Story in charts
Exhibit 47: Segmental EBITDA break-up (%) – E&P a dampener, refining and petchem outshine Exhibit 48: Expect E&P production to decline (mmscmd) Refining Petrochemicals E&P 13.8 100 12.2 Gas Production (mmscmd)
80 8.4 7.8 60 5.3 4.7 40
20 1.5 1.3
0 FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY20E FY21E Source: Company, MOFSL Source: Company, MOFSL
Exhibit 49: RIL refining margins have improved from FY16 Exhibit 50: We expect petrochem EBITDA to improve in (USD/bbl) after staying flat before that FY20/21 (INRb) Singapore GRM Premium/(disc) RIL GRM Petchem EBITDA (INRb) 394 397 11.6 11.3 10.8 11.0 10.3 10.5 8.8 297 8.5 256 3.3 4.4 4.1 5.2 4.3 4.5 2.5 171 2.8 143 110 118 7.5 7.3 5.6 6.4 5.8 7.2 6.0 6.1 FY14 FY15 FY16 FY17 FY18 FY19 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY20E FY21E Source: Company, MOFSL Source: Company, MOFSL
Exhibit 51: Dividend payout stabilized in recent years (%) Exhibit 52: RIL 1Y forward P/E P/E (x) Avg (x) Max (x) Dividend payout (%) 30.0 Min (x) +1SD -1SD 15.7 14.9 14.4 14.4 21.9 13.5 13.3 22.0 19.2 12.7 12.2 16.0 14.0 12.7 9.5
6.0 8.2 FY14 FY15 FY16 FY17 FY18 FY19 Jul-10 Jul-15 Jan-13 Jan-18 Oct-11 Oct-16 Apr-09 Apr-14 Apr-19 FY20E FY21E
Source: Company, MOFSL Source: Company, MOFSL
19 April 2019 25 Reliance Industries
Reliance Jio Infocomm: Financials and valuations
Income Statement (INR m) Y/E March FY15 FY16 FY17 FY18 FY19 FY20E FY21E Total Income from Operations 0 0 0 2,01,545 3,88,380 5,40,584 6,91,101 Change (%) NA 0.0 -50.0 NA 92.7 39.2 27.8 Total Expenditure 195 214 433 1,34,240 2,37,420 3,38,063 3,63,114 % of Sales NA NA NA 66.6 61.1 62.5 52.5 EBITDA -195 -213 -432 67,304 1,50,960 2,02,522 3,27,987 Margin (%) NA NA NA 33.4 38.9 37.5 47.5 Depreciation 34 43 49 35,765 63,980 82,180 94,059 EBIT -228 -257 -481 31,539 86,980 1,20,341 2,33,927 Int. and Finance Charges 16 14 10 20,486 41,480 73,242 1,49,336 Other Income 13 31 12 39 60 0 0 PBT -231 -241 -479 11,091 45,560 47,099 84,591 Total Tax 0 -83 -165 3,862 15,920 16,485 29,607 Tax Rate (%) 0.0 34.4 34.5 34.8 34.9 35.0 35.0 Reported PAT -231 -158 -314 7,230 29,640 30,614 54,984 Adjusted PAT -231 -158 -314 7,230 29,640 30,614 54,984 Change (%) NA -31.7 98.6 LP 310.0 3.3 79.6 Margin (%) NA NA NA 3.6 7.6 5.7 8.0
Balance Sheet (INR m) Y/E March FY15 FY16 FY17 FY18 FY19 FY20E FY21E Equity Share Capital 301,250 450,000 450,000 4,50,000 4,50,000 4,50,000 4,50,000 Total Reserves -508 -77,640 258,644 5,79,330 -46,000 -15,386 39,599 Net Worth 300,742 372,360 708,644 10,29,330 4,04,000 4,34,614 4,89,599 Total Loans 238,503 884,353 1,244,490 14,38,210 14,79,440 16,04,440 16,24,440 Capital Employed 539,245 1,256,713 1,953,134 24,67,540 18,83,440 20,39,054 21,14,039
Gross Block 10,256 11,825 13,606 15,94,917 14,43,607 19,89,687 21,37,687 Less: Accum. Deprn. 1,398 2,428 3,862 39,627 1,03,607 1,85,788 2,79,847 Net Fixed Assets 8,858 9,397 9,744 15,55,290 13,40,000 18,03,900 18,57,840 Capital WIP 722,978 1,060,694 1,779,776 6,99,870 3,46,080 0 0 Total Investments 7,924 8,332 8,729 10,160 12,630 11,080 11,080
Curr. Assets, Loans & Adv. 80,392 197,404 210,634 2,71,990 2,59,090 3,40,991 3,92,983 Account Receivables 0 1 2 9,120 7,350 29,621 37,869 Cash and Bank Balance 270 153 268 7,180 4,290 42,337 19,315 Loans and Advances 80,121 197,250 210,364 2,55,690 2,47,450 2,69,033 3,35,799 Curr. Liability & Prov. 280,906 19,115 55,750 69,770 74,360 1,16,916 1,47,865 Account Payables 0 0 0 31,170 32,560 41,679 44,768 Other Current Liabilities 280,724 18,718 55,067 34,060 40,750 64,870 89,843 Provisions 182 397 683 4,540 1,050 10,367 13,254 Net Current Assets -200,514 178,289 154,884 2,02,220 1,84,730 2,24,075 2,45,119 Appl. of Funds 539,245 1,256,713 1,953,134 24,67,540 18,83,440 20,39,054 21,14,039 E: MOFSL Estimates
19 April 2019 26 Reliance Industries
Reliance Jio Infocomm: Financials and valuations
Ratios
Y/E March FY15 FY16 FY17 FY18 FY19 FY20E FY21E Basic (INR)
EPS 0.0 0.0 0.0 0.2 0.7 0.7 1.2 Cash EPS 0.0 0.0 0.0 1.0 2.1 2.5 3.3 BV/Share 10.0 8.3 15.7 22.9 9.0 9.7 10.9 DPS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Valuation (x)
FCF per share -4.9 -9.3 -7.2 14.5 -0.3 2.4
Return Ratios (%)
RoE -0.1 0.0 -0.1 0.8 4.1 7.3 11.9 RoCE NA 0.0 0.0 0.9 2.6 4.0 7.3 RoIC NA 7.7 -0.2 2.1 3.5 4.5 7.5 Working Capital Ratios
Fixed Asset Turnover (x) 0.0 0.0 0.0 0.1 0.3 0.3 0.3 Asset Turnover (x) 0.0 0.0 0.0 0.1 0.2 0.3 0.3 Debtor (Days) 274 913 3,650 17 7 20 20 Creditor (Days) 0 0 0 56 31 28 24 Leverage Ratio (x)
Current Ratio 0.3 10.3 3.8 3.9 3.5 2.9 2.7 Interest Cover Ratio -14.0 -18.0 -47.2 1.5 2.1 1.6 1.6 Net Debt/Equity 0.8 2.4 1.7 1.4 3.6 3.6 3.3
Cash Flow Statement (INR m)
Y/E March FY15 FY16 FY17 FY18 FY19 FY20E FY21E OP/(Loss) before Tax -231 -239 -479 11,090 45,560 47,099 84,591 Depreciation 34 43 49 35,770 63,980 82,180 94,059 Interest & Finance Charges 16 14 10 20,490 41,480 73,242 1,49,336 Direct Taxes Paid 0 3 0 -2,400 -15,920 -16,485 -29,607 (Inc)/Dec in WC -27,827 -43,454 -33,637 -29,310 8,500 -35,568 -44,065 CF from Operations -28,009 -43,633 -34,057 35,640 1,43,600 1,50,469 2,54,314 Others -8 -26 -1 59 6,040 34,270 0 CF from Operating incl EO -28,017 -43,659 -34,058 35,699 1,49,640 1,84,739 2,54,314 (Inc)/Dec in FA -95,351 -176,334 -385,398 -3,57,860 5,05,100 -2,00,000 -1,48,000 Free Cash Flow -123,368 -219,992 -419,456 -3,22,161 6,54,740 -15,261 1,06,314 (Pur)/Sale of Investments -5,338 -246 -242 -1,430 -2,470 1,550 0 Others 70 78 61 70 330 270 270 CF from Investments -100,619 -176,502 -385,579 -3,59,220 5,02,960 -1,98,180 -1,47,730 Issue of Shares 70,530 150,000 0 3,13,400 0 0 0 Inc/(Dec) in Debt 71,513 102,861 478,037 1,01,980 41,230 1,25,000 20,000 Interest Paid -13,453 -32,740 -58,188 -84,890 -41,480 -73,242 -1,49,336 Dividend Paid 0 0 0 0 0 0 0 Others 0 0 0 4 -6,54,970 0 0 CF from Fin. Activity 128,590 220,121 419,849 3,30,494 -6,55,220 51,758 -1,29,336 Inc/Dec of Cash -45 -40 212 6,973 -2,620 38,317 -22,752 Opening Balance 315 193 56 207 6,910 4,020 42,067 Closing Balance 270 153 268 7,180 4,290 42,337 19,315
19 April 2019 27
Reliance Industries
Reliance Industries - Standalone Financials and valuations
Standalone - Income Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Total Income from Operations 39,01,170 32,90,760 23,31,580 24,20,250 29,00,420 37,10,190 47,89,346 49,26,897 Change (%) 8.3 -15.6 -29.1 3.8 19.8 27.9 29.1 2.9 EBITDA 3,08,770 3,16,020 3,93,470 4,32,560 5,17,410 5,82,570 6,53,398 6,72,393 Margin (%) 7.9 9.6 16.9 17.9 17.8 15.7 13.6 13.6 Depreciation 87,890 84,880 85,900 84,650 95,800 1,05,580 1,27,615 1,30,615 EBIT 2,20,880 2,31,140 3,07,570 3,47,910 4,21,610 4,76,990 5,25,784 5,41,778 Int. and Finance Charges 32,060 23,670 25,620 27,230 46,560 97,510 62,479 56,000 Other Income 89,360 87,210 78,210 87,090 82,200 94,190 51,030 55,516 PBT bef. EO Exp. 2,78,180 2,94,680 3,60,160 4,07,770 4,57,250 4,73,670 5,14,335 5,41,294 EO Items 0 0 0 0 0 0 0 0 PBT after EO Exp. 2,78,180 2,94,680 3,60,160 4,07,770 4,57,250 4,73,670 5,14,335 5,41,294 Total Tax 58,340 67,490 86,320 93,520 1,21,130 1,22,040 1,35,745 1,42,860 Tax Rate (%) 21.0 22.9 24.0 22.9 26.5 25.8 26.4 26.4 Reported PAT 2,19,840 2,27,190 2,73,840 3,14,250 3,36,120 3,51,630 3,78,590 3,98,434 Adjusted PAT 2,19,840 2,27,190 2,74,170 3,14,250 3,36,120 3,51,630 3,78,590 3,98,434 Change (%) 4.7 3.3 20.7 14.6 7.0 4.6 7.7 5.2 Margin (%) 5.6 6.9 11.8 13.0 11.6 9.5 7.9 8.1
Standalone - Balance Sheet (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Equity Share Capital 32,320 32,360 32,400 32,510 63,350 63,390 63,390 63,390 Eq. Share Warrants & App. Money 170 170 0 0 0 0 0 0 Total Reserves 19,38,420 21,29,230 25,07,580 28,50,620 30,83,120 39,89,830 43,13,809 46,54,770 Net Worth 19,70,910 21,61,760 25,39,980 28,83,130 31,46,470 40,53,220 43,77,199 47,18,160 Total Loans 8,54,810 9,76,170 9,23,200 10,13,030 9,68,350 15,71,950 7,00,000 7,00,000 Deferred Tax Liabilities 1,22,150 1,26,770 2,37,470 2,47,660 2,79,260 4,73,170 4,73,170 4,73,170 Capital Employed 29,47,870 32,64,700 37,00,650 41,43,820 43,94,080 60,98,340 55,50,369 58,91,330
Gross Block 22,25,650 23,60,620 26,22,320 25,84,480 31,58,620 32,86,440 43,03,820 44,03,820 Less: Accum. Deprn. 11,31,590 12,14,990 11,46,890 10,53,180 11,48,980 12,54,560 15,89,947 17,20,561 Net Fixed Assets 10,94,060 11,45,630 14,75,430 15,31,300 20,09,640 20,31,880 27,13,873 26,83,259 Capital WIP 4,17,160 7,57,530 11,09,050 13,41,890 9,94,830 11,15,570 7,05,962 8,05,962 Total Investments 8,94,620 11,25,730 15,72,500 19,24,500 22,52,220 33,15,360 31,49,592 31,49,592
Curr. Assets, Loans&Adv. 12,69,990 9,48,960 6,59,760 6,69,770 9,18,560 12,94,640 19,09,830 22,65,524 Inventory 4,29,320 3,65,510 2,80,340 3,40,180 3,95,680 4,41,440 6,56,075 6,74,917 Account Receivables 1,06,640 46,610 34,950 54,720 1,04,600 1,21,100 1,70,579 1,75,479 Cash and Bank Balance 3,32,240 1,15,710 68,920 17,540 27,310 37,680 3,15,523 6,03,244 Loans and Advances 4,01,790 4,21,130 2,75,550 2,57,330 3,90,970 6,94,420 7,67,653 8,11,884 Curr. Liability & Prov. 7,27,960 7,13,150 11,16,090 13,23,640 17,81,170 16,59,110 29,28,888 30,13,007 Account Payables 6,86,290 6,50,570 10,93,730 12,89,780 17,49,940 16,26,450 28,86,729 29,69,636 Provisions 41,670 62,580 22,360 33,860 31,230 32,660 42,160 43,370 Net Current Assets 5,42,030 2,35,810 -4,56,330 -6,53,870 -8,62,610 -3,64,470 -10,19,058 -7,47,483 Appl. of Funds 29,47,870 32,64,700 37,00,650 41,43,820 43,94,080 60,98,340 55,50,369 58,91,330 E: MOFSL Estimates
19 April 2019 28 Reliance Industries
Reliance Industries – Standalone Financials and valuations
Ratios Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Basic (INR) EPS 34.7 35.9 43.3 49.6 53.1 55.5 59.8 62.9 Cash EPS 48.6 49.3 56.8 63.0 68.2 72.2 79.9 83.5 BV/Share 326.2 357.8 420.3 477.1 520.7 670.8 724.4 780.8 DPS 4.4 4.6 4.9 5.6 5.6 -6.3 7.4 7.8 Payout (%) 14.9 15.7 13.5 13.3 12.7 12.2 14.4 14.4 Valuation (x) P/E 38.6 32.0 27.9 26.1 25.0 23.2 22.0 Cash P/E 28.1 24.4 22.0 20.3 19.2 17.3 16.6 P/BV 3.9 3.3 2.9 2.7 2.1 1.9 1.8 EV/Sales 2.9 4.1 4.0 3.4 2.8 1.9 1.8 EV/EBITDA 30.5 24.5 22.6 18.8 17.7 14.0 13.2 Dividend Yield (%) 0.3 0.3 0.4 0.4 0.4 -0.5 0.5 0.6 FCF per share -8.5 2.3 41.6 28.7 71.8 -13.5 164.0 54.5 Return Ratios (%) RoE 11.7 11.0 11.7 11.6 11.1 9.8 9.0 8.8 RoCE 9.2 8.2 8.9 9.1 9.2 8.7 7.9 8.4 RoIC 12.7 13.9 21.1 29.6 31.3 25.8 25.7 29.4 Working Capital Ratios Fixed Asset Turnover (x) 1.8 1.4 0.9 0.9 0.9 1.1 1.1 1.1 Asset Turnover (x) 1.3 1.0 0.6 0.6 0.7 0.6 0.9 0.8 Inventory (Days) 40 41 44 51 50 43 50 50 Debtor (Days) 10 5 5 8 13 12 13 13 Creditor (Days) 64 72 171 195 220 160 220 220 Leverage Ratio (x) Current Ratio 1.7 1.3 0.6 0.5 0.5 0.8 0.7 0.8 Interest Cover Ratio 6.9 9.8 12.0 12.8 9.1 4.9 8.4 9.7 Net Debt/Equity -0.2 -0.1 -0.3 -0.3 -0.4 -0.4 -0.6 -0.6
Standalone - Cash Flow Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E OP/(Loss) before Tax 2,78,180 2,94,680 3,60,160 4,07,770 4,57,250 4,73,670 5,14,335 5,41,294 Depreciation 87,890 84,880 85,900 84,650 95,800 1,05,580 1,27,615 1,30,615 Interest & Finance Charges 0 0 0 0 0 0 0 0 Direct Taxes Paid -58,340 -67,490 -86,320 -93,520 -1,21,130 -1,22,040 -1,35,745 -1,42,860 (Inc)/Dec in WC -51,630 1,74,450 5,60,590 1,46,160 2,18,510 -4,87,770 9,32,432 16,146 CF from Operations 2,56,100 4,86,520 9,20,330 5,45,060 6,50,430 -30,560 14,38,636 5,45,194 Others 220 4,620 1,10,700 10,190 31,600 1,93,910 0 0 CF from Operating incl EO 2,56,320 4,91,140 10,31,030 5,55,250 6,82,030 1,63,350 14,38,636 5,45,194 (Inc)/Dec in FA -3,10,470 -4,76,820 -7,67,220 -3,73,360 -2,27,080 -2,48,560 -4,00,000 -2,00,000 Free Cash Flow -54,150 14,320 2,63,810 1,81,890 4,54,950 -85,210 10,38,636 3,45,194 (Pur)/Sale of Investments -3,69,530 -2,31,110 -4,46,770 -3,52,000 -3,27,720 -10,63,140 1,65,768 0 CF from Investments -6,80,000 -7,07,930 -12,13,990 -7,25,360 -5,54,800 -13,11,700 -2,34,232 -2,00,000 Issue of Shares -16,450 -750 1,41,380 70,638 -29,970 5,97,930 0 0 Inc/(Dec) in Debt 3,09,580 36,600 31,790 89,830 -44,680 6,03,600 -8,71,950 0 Dividend Paid -32,680 -35,590 -37,000 -41,738 -42,810 -42,810 -54,611 -57,473 CF from Fin. Activity 2,60,450 260 1,36,170 1,18,730 -1,17,460 11,58,720 -9,26,561 -57,473 Inc/Dec of Cash -1,63,230 -2,16,530 -46,790 -51,380 9,770 10,370 2,77,843 2,87,721 Opening Balance 4,95,470 3,32,240 1,15,710 68,920 17,540 27,310 37,680 3,15,523 Closing Balance 3,32,240 1,15,710 68,920 17,540 27,310 37,680 3,15,523 6,03,244 E: MOFSL Estimates
19 April 2019 29 Reliance Industries
Reliance Industries – Consolidated Financials and valuations
Consolidated - Income Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Total Income from Operations 43,44,600 37,54,350 27,39,990 30,53,820 39,16,770 56,71,350 72,92,419 78,54,466 Change (%) 9.4 -13.6 -27.0 11.5 28.3 44.8 28.6 7.7 EBITDA 3,47,990 3,73,640 4,17,040 4,61,940 6,41,760 8,39,180 9,42,056 11,05,427 Margin (%) 8.0 10.0 15.2 15.1 16.4 14.8 12.9 14.1 Depreciation 1,12,010 1,15,470 1,15,650 1,16,460 1,67,060 2,09,340 2,48,971 2,64,623 EBIT 2,35,980 2,58,170 3,01,390 3,45,480 4,74,700 6,29,840 6,93,085 8,40,804 Int. and Finance Charges 38,360 33,160 36,910 38,490 80,520 1,64,950 1,49,756 2,19,371 Other Income 90,010 86,130 1,22,890 93,350 88,620 86,350 57,869 63,262 PBT bef. EO Exp. 2,87,630 3,11,140 3,87,370 4,00,340 4,82,800 5,51,240 6,01,198 6,84,696 EO Items 0 0 0 0 0 0 411 411 PBT after EO Exp. 2,87,630 3,11,140 3,87,370 4,00,340 4,82,800 5,51,240 6,01,609 6,85,107 Total Tax 62,150 74,740 88,760 1,02,010 1,33,460 1,53,900 1,82,928 2,09,642 Tax Rate (%) 21.6 24.0 22.9 25.5 27.6 27.9 30.4 30.6 Minority Interest 550 740 1,160 -680 -11,460 -1,030 -680 -680 Reported PAT 2,24,930 2,35,660 2,97,450 2,99,010 3,60,800 3,98,370 4,19,361 4,76,145 Adjusted PAT 2,24,930 2,35,660 2,97,450 2,99,010 3,60,800 3,98,370 4,19,075 4,75,860 Change (%) 7.7 4.8 26.2 0.5 20.7 10.4 5.2 13.6 Margin (%) 5.2 6.3 10.9 9.8 9.2 7.0 5.7 6.1
Consolidated - Balance Sheet (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Equity Share Capital 29,400 29,430 29,480 29,590 59,220 59,260 59,260 59,260 Eq. Share Warrants & App. Money 170 170 80 0 0 0 0 0 Total Reserves 19,57,300 21,55,390 22,86,000 26,07,500 28,75,840 38,11,860 41,87,479 46,14,010 Net Worth 19,86,870 21,84,990 23,15,560 26,37,090 29,35,060 38,71,120 42,46,739 46,73,270 Minority Interest 9,590 30,380 33,560 29,170 35,390 82,800 82,800 82,800 Total Loans 13,87,610 16,82,510 19,47,140 18,36,760 18,16,040 27,19,420 27,99,420 28,79,420 Deferred Tax Liabilities 1,19,250 1,29,740 2,04,940 2,11,980 2,45,430 4,99,230 4,99,230 4,99,230 Capital Employed 35,03,320 40,27,620 45,01,200 47,15,000 50,31,920 71,72,570 76,28,189 81,34,720
Gross Block 26,10,190 28,44,690 33,12,450 35,64,010 57,75,450 58,67,840 76,03,544 83,30,685 Less: Accum. Deprn. 11,96,020 13,24,080 15,05,890 16,27,670 17,94,730 20,04,070 22,53,041 25,17,664 Net Fixed Assets 14,14,170 15,20,610 18,06,560 19,36,340 39,80,720 38,63,770 53,50,503 58,13,021 Goodwill on Consolidation 0 43,970 42,540 48,920 58,130 1,19,970 1,19,970 1,19,970 Capital WIP 9,14,940 16,64,620 22,86,970 32,48,370 18,70,220 17,94,630 6,58,926 3,31,785 Total Investments 6,06,020 7,64,510 8,40,150 8,56,070 8,55,300 24,23,010 24,23,010 24,23,010
Curr. Assets, Loans&Adv. 13,53,300 10,51,150 10,13,750 9,78,320 13,48,360 18,22,680 27,73,031 34,08,797 Inventory 5,67,200 5,32,480 4,64,860 4,89,510 6,08,370 6,75,610 8,87,876 9,43,617 Account Receivables 94,110 53,150 44,650 81,770 1,75,550 3,00,890 3,86,895 4,16,714 Cash and Bank Balance 3,79,840 1,25,450 1,10,280 30,230 42,550 75,120 5,06,804 9,80,597 Loans and Advances 3,12,150 3,40,070 3,93,960 3,76,810 5,21,890 7,71,060 9,91,456 10,67,870 Curr. Liability & Prov. 7,85,110 10,17,240 14,88,770 23,53,020 30,80,810 28,51,490 36,97,250 39,61,863 Account Payables 6,08,600 5,94,070 6,02,960 7,65,950 10,68,610 10,83,090 14,23,380 15,12,740 Other Current Liabilities 1,29,150 3,53,710 8,55,750 15,45,850 19,70,820 17,21,100 22,13,050 23,83,616 Provisions 47,360 69,460 30,060 41,220 41,380 47,300 60,820 65,508 Net Current Assets 5,68,190 33,910 -4,75,020 -13,74,700 -17,32,450 -10,28,810 -9,24,220 -5,53,066 Appl. of Funds 35,03,320 40,27,620 45,01,200 47,15,000 50,31,920 71,72,570 76,28,189 81,34,720 E: MOFSL Estimates
19 April 2019 30 Reliance Industries
Reliance Industries – Consolidated Financials and valuations
Ratios Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E Basic (INR) EPS 38.0 39.8 50.2 50.5 60.9 67.2 70.7 80.3 Cash EPS 56.9 59.3 69.7 70.1 89.1 102.5 112.7 125.0 BV/Share 335.3 368.7 390.7 445.0 495.3 653.2 716.6 788.6 DPS 4.7 5.0 5.2 5.5 6.0 5.8 6.1 6.9 Payout (%) 14.5 15.1 12.4 13.0 11.9 10.3 10.3 10.3 Valuation (x) P/E 34.9 27.7 27.5 22.8 20.7 19.6 17.3 Cash P/E 23.4 19.9 19.8 15.6 13.5 12.3 11.1 P/BV 3.8 3.6 3.1 2.8 2.1 1.9 1.8 EV/Sales 2.6 3.7 3.3 2.6 1.9 1.4 1.3 EV/EBITDA 26.2 24.1 21.7 15.6 13.0 11.2 9.2 Dividend Yield (%) 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.5 FCF per share 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Return Ratios (%) RoE 11.8 11.3 13.2 12.1 13.0 11.7 10.3 10.7 RoCE 8.2 7.2 8.0 7.5 8.8 9.1 7.7 8.6 RoIC 11.6 12.8 17.0 27.9 24.2 17.7 13.9 13.8 Working Capital Ratios Fixed Asset Turnover (x) 1.7 1.3 0.8 0.9 0.7 1.0 1.0 0.9 Asset Turnover (x) 1.2 0.9 0.6 0.6 0.8 0.8 1.0 1.0 Inventory (Days) 48 52 62 59 57 43 44 44 Debtor (Days) 8 5 6 10 16 19 19 19 Creditor (Days) 51 58 80 92 100 70 71 70 Leverage Ratio (x) Current Ratio 1.7 1.0 0.7 0.4 0.4 0.6 0.8 0.9 Interest Cover Ratio 6.2 7.8 8.2 9.0 5.9 3.8 4.6 3.8 Net Debt/Equity 0.2 0.4 0.4 0.4 0.3 0.1 0.0 -0.1
Consolidated - Cash Flow Statement (INR m) Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E PBT 2,87,630 3,11,140 3,87,370 4,00,340 4,82,800 5,51,240 6,01,198 6,84,696 Depreciation 1,12,010 1,15,470 1,15,650 1,16,460 1,67,060 2,09,340 2,48,971 2,64,623 Tax paid -62,150 -74,740 -88,760 -1,02,010 -1,33,460 -1,53,900 -1,82,928 -2,09,642 Change in deferred tax liability 3,370 10,490 75,200 7,040 33,450 2,53,800 0 0 Change in net working capital 62,330 2,79,890 4,93,760 8,19,630 3,70,070 -6,71,070 3,27,094 1,02,639 Misc -550 -740 -1,160 680 11,460 1,030 680 680 Operating cash flow 4,02,640 6,41,510 9,82,060 12,42,140 9,31,380 1,90,440 9,95,014 8,42,996 Capex -6,06,730 -10,15,560 -10,22,520 -12,14,020 -8,42,500 -78,640 -6,00,000 -4,00,000 Change in investments -1,77,540 -1,58,490 -75,640 -15,920 770 -15,67,710 0 0 Misc 0 0 0 0 0 0 0 0 Investing cash flows -7,84,270 -11,74,050 -10,98,160 -12,29,940 -8,41,730 -16,46,350 -6,00,000 -4,00,000 Change in borrowings 3,15,420 2,94,900 2,64,630 -1,10,380 -20,720 9,03,380 80,000 80,000 Misc 100 20,790 3,180 -4,390 6,220 47,410 0 0 Issuance of equity -25,930 -1,950 -1,29,880 61,469 -20,020 5,78,892 0 0 Dividend paid -32,680 -35,590 -37,000 -38,949 -42,810 -41,202 -43,330 -49,203 Financing cash flow 2,56,910 2,78,150 1,00,930 -92,250 -77,330 14,88,480 36,670 30,797 Net change in cash -1,24,720 -2,54,390 -15,170 -80,050 12,320 32,570 4,31,684 4,73,793 Closing cash balance 3,79,840 1,25,450 1,10,280 30,230 42,550 75,120 5,06,804 9,80,597 E: MOFSL Estimates
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Corporate profile
Sensex rebased Company description Reliance Industries Ltd (RIL), a Fortune 500 company, is India's largest private sector entity, with a turnover of USD60.0b and net profit of USD5.5b. Over the years, RIL has grown through backward integration in energy chain (textiles, petchem, refining and E &P) and is now moving into new areas like organized retail and BWA. It operates one of the largest refining capacity of 1.24mmbbl/d at a single location and is the largest producer of polyester fibre and yarn. Source: MOFSL/Bloomberg
Exhibit 1: Shareholding pattern (%) Exhibit 2: Top holders Dec-18 Sep-18 Dec-17 Holder Name % Holding Promoter 46.2 46.2 46.2 LIC of India 7.6 DII 12.2 11.6 11.3 Europacific Growth Fund 3.2 FII 25.7 26.2 26.2 Government of Singapore 1.3 Others 16.0 16.0 16.3 Note: FII Includes depository receipts Source: Capitaline
Source: Capitaline
Exhibit 3: Top management Exhibit 4: Directors Name Designation Name Name Mukesh D Ambani Chairman & Managing Director Adil Zainulbhai* R A Mashelkar* Nita M Ambani Director Ashok Misra* Raminder Singh Gujral* Hital R Meswani Executive Director Dipak C Jain* Shumeet Banerji* Nikhil Meswani Executive Director M L Bhakta* Y P Trivedi* Pawan Kumar Kapil Executive Director Arundhati Bhattacharya PMS Prasad Executive Director K Sethuraman Company Secretary
Source: Capitaline *Independent
Exhibit 5: Auditors Exhibit 6: MOFSL forecast v/s consensus Name Type EPS MOFSL Consensus Variation Dilip M Malkar & Co Cost Auditor (INR) forecast forecast (%) Diwanji & Co Cost Auditor FY19 67.2 64.1 4.8 DTS & Associates Statutory FY20 70.7 76.9 -8.1 K G Goyal & Associates Cost Auditor FY21 80.3 91.0 -11.8 K R Chandratre Secretarial Audit Source: Bloomberg Source: Capitaline
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