INDIA Defying gravity? We resume coverage of Reliance Industries (RIL) with an Underperform recommendation and Rs.1350 one-year price target with 15% potential downside. To justify today’s share price, in addition to the growth from RIL’s new refining and petchem projects and a constructive refining margin view, we need to ascribe US$12 billion option value for (burgeoning telecom business)—with not a single $ of revenue booked we consider this optionality premature.

RIL IN Underperform “Growth is life” In-sync with RIL’s motto, EBITDA has grown 1.4x over the past five years and is Price (at 15:23, 24 Jul 2017 GMT) Rs1,615.00 set to increase 1.9x over the next five years underpinned by the ramp-up of

Valuation Rs 1,340.00 several new projects—refinery petcoke gasification, off-gas cracker, paraxylene - DCF (WACC 9.0%, beta 0.9, ERP 6.9%, RFR 2.5%, TGR 4.0%) capacity addition, ethane imports, retail expansion, and JIO (page 10-30). This 12-month target Rs 1,350.00 EBITDA growth is however fully captured in consensus estimates in our view. 12-month TSR % -15.7 GICS sector Energy FCF and returns to improve… but underwhelm Market cap Rsbn 5,252 Market cap US$m 80,048 While RIL is transitioning this year from the funding to harvest phase for its Free float % 47 refining and petchem projects, in our opinion consensus cash capex estimates 30-day avg turnover US$m 297 for FY18-20e are light by 35%. We attribute this difference to JIO, R-series Number shares on issue m 3,252 deepwater gas, and repayment of vendor financing. For FY18-20e we project an

average 1% FCF yield and 9% ROCE versus consensus at 5%-12%. Investment fundamentals Year end 31 Mar 2017A 2018E 2019E 2020E Amazon-esque optionality? EBITDA bn 461.9 559.8 618.5 691.3 EBITDA growth % 10.7 21.2 10.5 11.8 EBIT bn 345.5 358.3 393.6 431.2 RIL shares have de-coupled from the historically strong returns versus multiple EBIT growth % 14.6 3.7 9.8 9.6 framework as the market has been willing to price the optionality for JIO (fig 1). Reported profit bn 299.0 288.8 297.7 326.5 To the extent valuing JIO akin to Amazon or Alibaba is appropriate and if we Adjusted profit bn 299.0 278.0 297.7 326.5 CFPS Rs 140.80 162.47 177.09 198.79 apply 5x EV-Sales on FY5 estimates then the optionality on offer is a significant CFPS growth % 12.9 15.4 9.0 12.3 US$23 billion or Rs.500/sh above our base case. For perspective this would be PGCFPS x 11.5 9.9 9.1 8.1 EPS rep Rs 101.33 97.88 100.87 110.66 equivalent to the size of India’s largest telecom incumbent. We ascribe EPS adj Rs 101.33 94.19 100.87 110.66 c.Rs.90/sh value for JIO in our base case valuation (fig 3). Our Rs.1350 price EPS adj growth % 18.6 -7.0 7.1 9.7 PER adj x 15.9 17.1 16.0 14.6 target implies 9.0x FY19E EV-EBITDA, 13.5x P/E, and 1.3x P/B. For Total DPS Rs 11.00 12.00 13.00 14.00 downstream exposure our top pick is Indian Oil (IOCL IN, TP: Rs.550, +45%). Total div yield % 0.7 0.7 0.8 0.9 ROA % 5.3 5.0 5.3 5.8 ROE % 11.9 9.8 9.5 9.8 Fig 1 Rs.1350 RIL fundamental base case with 15% downside; current EV/EBITDA x 14.2 11.7 10.6 9.5 Net debt/equity % 67.8 56.2 56.5 54.4 share price already implies meaningful option value for JIO P/BV x 1.8 1.6 1.5 1.4

Reliance 3-Year Bull-Bear Outcomes Also see: 2,000 Rs/sh India Refining & Marketing – Who says elephants can’t dance? 1,700 Current price

Global Refining – Expansions outweighed 1,400 by demand 1,100

800 Analyst(s) Aditya Suresh, CFA +852 3922 1265 [email protected]

25 July 2017 Macquarie Capital Limited

Source: Company data, Macquarie Research, July 2017

Please refer to page 38 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.

Macquarie Research Reliance Industries

Inside Reliance – In a page

Fig 2 Core growth and JIO optionality already in the price Base Valuation & Bull-Bear Outcomes 3 Versus Consensus 4 Consolidated Earnings Outlook 9 (1) Refining 10 (2) Petchems 17 (3) Telecom (JIO) 25 (4) Upstream Oil & Gas 30 (5) Organized Retail, Other 33 Residual Income & Sensitivities 34 Financial Summary 35 Macquarie Quant View 36

RIL IN rel BSE Sensex performance, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, July 2017

(all figures in INR unless noted)

Company Profile Reliance Industries (RIL) is India’s largest listed conglomerate with operations in refining, petrochemicals, telecoms, upstream oil and gas, organized retail, media, etc. Refining and petrochemicals combined account for over 90% of group EBITDA today. The contribution of RIL’s burgeoning telecom business could rise to one-fifth of group EBITDA in five years, from zero today, we estimate. 1600 Rs/sh

1200

800

400

0

Source: Company data, Macquarie Research, July 2017

25 July 2017 2

Macquarie Research Reliance Industries

Base Valuation & Bull-Bear Outcomes Fig 3 Rs.1350 one-year price target for Reliance based on a sum-of-the-parts valuation and supported with residual income valuation work. Our target price implies 9.0x FY19e EV-EBITDA, 13.5x P/E, and 1.3x P/B. Target also supported by residual income valuation (p. 35)

FY18-20e Base Base Target RIL SOTP Valuation Approach Reference Value Value Comments Multiple (INR, bn) (US$, bn) (INR/sh) Refining and Marketing EV-EBITDA 311 7.0x 33.5 738 10% premium to EM R&M median Petrochemicals EV-EBITDA 245 7.0x 26.4 582 Target at EM petchem median Organized Retail EV-EBITDA 21 15.0x 4.8 105 India retail comps used Oil and Gas EV-DACF 13 4.0x 0.8 17 Disc to EM upstream median Others (ex JIO) EV-EBITDA 6 10.0x 0.9 20 Assumed similar to group multiple LT Investments Fair Value (reported) 3.8 84 At reported fair value Net Debt, ex JIO End-FY17, ex JIO -12.3 -271 Also includes ST investments RIL Core Equity Value 1,275

EV-Invested Capital 1,817 0.7x 19.6 431 Discount to IC as ROIC

Treasury shares 292mn Rs.1600 6.4 141 Pet Trust & holding by subsids Conglomerate Discount 10% -150

RIL Equity Valuation, ex JIO optionality 1,353 MacQ base case RIL Equity Valuation, including JIO optionality and no conglomerate discount 1,866 For reference only Notes: Net debt does not include vendor financing and other current liabilities equivalent to Rs380/sh as we consider this akin to accounts payable. We treat RIL’s short-term investments (Rs180/sh) equivalent to cash.

Fig 4 Wide bear-bull range; bull case largely rests on JIO being a success

Reliance 3-Year Bull-Bear Outcomes 2,000

1,700 Current price

1,400

1,100

800

Bull Case:  Amazon-esque optionality for JIO assumes 5x EV-Sales on FY5 estimates  Bull Refining Margin +$2 per barrel versus base case – RIL $16.0/bbl, Singapore benchmark $9.0/bbl Bear Case:  $5.0/bbl Singapore benchmark refining margin  20% contraction in integrated petchem margins  30% lower revenue versus base case assuming 500bps lower market share Source: Company data, Macquarie Research, July 2017

25 July 2017 3 Macquarie Research Reliance Industries

Versus Consensus EBITDA inline for FY18, downside for FY19-20e We expect RIL consolidated EBITDA to increase 21%/10%/12% y/y in FY18/19/20e, inline for FY18, but 12% below for FY19-20e. Our key modelling assumptions include:

. Refining & Marketing – constructive product crack outlook and opex savings from petcoke gasification project partly offset by tighter light-heavy crude spreads. We assume RIL restarts 300 stations/pa but the impact on consolidated EBITDA is less than 1%, on our estimates.

. Petchems – Three new projects add to segment earnings from FY18: (1) Refinery off-gas cracker (1.7mtpa downstream capacity), (2) Paraxylene (2.2 mtpa), (3) Ethane imports / cracker feedstock reconfiguration. The incremental contribution of these projects is partly offset by negative movements in long-chain petchem margins.

. Telecom (JIO) – Rs.165-260 billion revenue, Rs.20-60 billion EBITDA modelled for FY18- 19e based on 26% India mobile broadband market share and better-than-peers cost structure.

. Upstream – Production declines until ramp-up of three-phase R-series gas project (RIL 60%, BP 40%) from FY21e. The production decline is offset by a mild improvement in average gas price realizations due to a mix improvement (Sohagpur CBM).

. Others (Retail, Network etc) – Solid c.30% revenue growth (store adds, higher per store revenue) and stable EBITDA margins assumed. Group EBITDA contribution still sub-5%.

. What could bring us in-line with consensus? FY18 – inline. For FY19, the gap of c.Rs.80 billion implies US$14.4/bbl refining (+$2.7 vs. base) or better-than-forecast petchem spreads -- impact of 5% change in petchem spreads is equivalent to ~US$0.7/bbl change in refining, we estimate. Fig 5 RIL EBITDA FY18-19 bridge: consensus downside for FY19; refining and petchems key sensitivities

Refining Y/Y EBITDA movements Petchems Y/Y EBITDA movements (Rs., billion) FY18 FY19 FY20 (Rs., billion) FY18 FY19 FY20 FY0 EBITDA 286 299 301 FY0 EBITDA 165 221 255 Petcoke gasification savings 32 19 8 Off-gas Cracker Commissioning 28 24 0 Product Crack vs. Light Crude ∆ 41 -15 6 Polyester, Paraxylene Expansion 22 11 0 Crude Sourcing / Light-Heavy ∆ -49 3 16 Cost savings from Ethane imports 16 -2 4 Polymer spread ∆ Inventory ∆ -5 -1 4 -6 4 0 Polyester spread ∆ -5 -3 -2 FX / Other -6 -3 -1 Elastomer spread ∆ -5 -3 0 FY1 EBITDA 299 301 334 FX / Other / Eliminations 6 2 2 Y/Y change 4% 1% 11% FY1 EBITDA 221 255 260 Y/Y change 34% 15% 2% Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.

25 July 2017 4 Macquarie Research Reliance Industries

EBIT 20% below for FY19-20e; JIO amortization a key uncertainty Our forecast EBITDA growth is diluted to 10%/3%/10% y/y EBIT growth for FY18/19/20e. The main drag is the significant amortization headwind for JIO (charges capitalized till date). Against consensus our EBIT estimate is mildly ahead for FY18 but 20% below for FY19-20e.

Fig 6 EBIT growth outlook materially suppressed by JIO amortization headwind

Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.

Free Cash Flow to disappoint – disconnect in headlines versus cash movements Mere 1% FCF yield While RIL reported US$17.7 billion capex for FY17 the actual cash outflow was 32% lower FY18-20e due to vendor financing. Similarly cash capex in FY15-16 was 37%-58% below reported capex. On a cumulative basis we estimate a US$11 billion cash flow drag in the next five years due to capex timing differences over the past five years. As such while headline capex reported by RIL peaked in FY17 and will be meaningfully lower from this year, we do not expect a commensurate improvement in free cash flow, even with customer advances for JioPhone. Our base case implies an average 1% FCF yield over the next three years versus consensus forecast 5% FCF yield.

Fig 7 FCF to improve but underwhelm – consensus capex 35% light; repayment of vendor financing a drag

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

25 July 2017 5 Macquarie Research Reliance Industries

Reported returns to improve but underwhelm; cash return outlook better No meaningful Our base case modelling implies return on capital employed (ROCE) for RIL remains improvement in essentially around 9-10% in our forecast horizon. That said, we note that on a cash basis, ROCE adjusting for depreciation and amortization expenses (JIO a big incremental drag), returns improve to 18% by FY20e from 14% in FY17.

Fig 8 JIO a drag on returns… only a mild improvement in returns on completion of expansion projects

Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18. Consensus estimates for non-covered companies

Multiples have decoupled from fundamentals RIL shares have de-coupled from the historically strong returns versus multiple framework as the market has been willing to price the optionality for JIO (fig 9). To the extent this optionality doesn’t play out the downside for RIL’s returns-justified multiple is material c.30%, albeit not in our base case.

Fig 9 Reliance trading multiples supported by fund flows, JIO optionality and not entirely by fundamentals

Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.

25 July 2017 6 Macquarie Research Reliance Industries

Fig 10 EV-EBITDA versus ROIC: Premium multiple for core (ex JIO) priced in; including JIO, Reliance in special- sit territory due to potential optionality

Source: Company data, FactSet, Macquarie Research, July 2017. Consensus estimates for non-covered companies.

Rs.1950 bull-case: potentially meaningful optionality but likely premature? JIO = Amazon or In our base case we model revenues for JIO with the mindset of a burgeoning telecom Alibaba? Rs.1950 company structurally taking share from the incumbents. To the extent our reference should bull-case not be telecoms and instead the likes of Amazon or Alibaba then the upside to our revenue modelling is potentially significant. If this were the case valuing JIO on EV-Sales several

years out perhaps is more appropriate – if we apply 5x EV-Sales on FY5 estimates then the option value on offer is a significant US$23 billion or Rs.500/sh. For perspective this would be equivalent to the size of India’s largest telecom incumbent.

Fig 11 To the extent JIO should be viewed as Amazon then the upside to revenue and multiples is significant

US$, India Telcos Revenue Profile US$, Revenue: JIO versus Amazon, Alibaba billion billion 20 150

120 15 90 10 60

5 30 Year Year 0 0 0 2 4 6 8 10 12 14 16 18 20 0 2 4 6 8 10 12 14 16 18 20 Bharti (T1: '02) Idea (T1: '06) JIO (T1: '18) Amazon (T1: '97) JIO (T1: '18) RCom (T1: '07) Alibaba (T1: '12) Source: Company data, FactSet, Macquarie Research, July 2017

25 July 2017 7

25 July 201725 Research Macquarie Fig 12 Reliance Comparables Valuation Reliance Industries - Peer Valuation

Market ADTV - Price FCF Company Reco. Ticker Currency Price Divi Yield TSR EV/EBITDA P/E P/B ROACE Gearing Cap 6M Target Yield (US$ bn) (US$ mn) (local) (local) (local) FY1 (PT + DY) FY1 FY2 FY1 FY2 FY1 FY1 FY1 FY1 Asia Integrated / Diversified Majors 6.0 x 5.8 x 14.1 x 13.7 x 1.4 x 7% 10% 28% PetroChina-H Neutral 857-HK 115.1 71.7 HKD 4.91 5.20 2.0% 8% 4.7 x 4.9 x 247.8 x 61.4 x 0.7 x 5% 4% 32%

Sinopec-H Outperform 386-HK 93.0 64.7 HKD 6.00 7.00 4.9% 22% 4.2 x 4.1 x 12.6 x 11.3 x 0.9 x 15% 8% 0% Reliance Industries Underperform 500325-IN 80.2 298.9 INR 1,615.00 1,350.00 0.8% -16% 10.9 x 10.0 x 15.6 x 16.1 x 1.5 x 0% 9% 42% Formosa Petrochemical Underperform 6505-TW 32.9 11.9 TWD 105.00 85.00 4.8% -14% 10.9 x 12.2 x 18.5 x 20.7 x 3.2 x 8% 18% -5% PTT NR PTT-TH 32.3 53.8 THB 378.00 NR 4.1% NR 4.0 x 3.6 x 10.0 x 9.9 x 1.2 x 11% 10% 25% Indian Oil Outperform 530965-IN 28.7 33.2 INR 380.40 550.00 3.6% 48% 7.2 x 6.6 x 10.1 x 8.7 x 1.7 x 5% 14% 50%

Refining & Marketing - APAC, EM 6.6 x 6.5 x 8.7 x 9.0 x 1.5 x 7% 15% 38% JXTG Holdings Outperform 5020-JP 15.2 66.5 JPY 493.00 600.00 3.7% 25% 5.4 x 5.1 x 8.1 x 8.2 x 1.5 x 9% 7% 108% Outperform 500547-IN 15.7 26.9 INR 467.20 580.00 3.3% 27% 8.5 x 7.3 x 10.7 x 9.9 x 2.8 x 3% 24% 62% SK Innovation Outperform 096770-KR 14.3 37.8 KRW 171,500.0 230,000.0 3.9% 38% 4.3 x 4.2 x 6.8 x 6.7 x 0.8 x 9% 12% 5% PKN Orlen NR PKN-PL 12.5 26.4 PLN 106.35 NR 2.7% NR 5.4 x 5.8 x 9.4 x 10.9 x 1.4 x 5% 15% 7% S-Oil Outperform 010950-KR 11.2 23.9 KRW 108,000.0 137,000.0 5.1% 32% 10.3 x 8.2 x 10.6 x 9.0 x 2.1 x -12% 13% 50% Outperform 500104-IN 8.7 26.8 INR 367.25 430.00 3.3% 20% 8.1 x 8.5 x 8.2 x 9.0 x 2.3 x 2% 20% 80% Tupras NR TUPRS-TR 7.7 21.4 TRY 108.80 NR 7.6% NR 6.8 x 6.9 x 9.2 x 9.4 x 2.8 x 8% 20% 55% MOL NR MOL-HU 6.5 10.1 HUF 21,585.00 NR 3.3% NR 4.0 x 3.8 x 7.5 x 7.8 x 1.2 x na na 27% Caltex Australia Outperform CTX-AU 6.5 24.1 AUD 31.35 32.77 3.8% 8% 7.5 x 8.0 x 13.5 x 14.8 x 2.7 x 7% 21% 20% Sinopec Shanghai NR 338-HK 6.2 9.6 HKD 4.45 NR 4.4% NR 8.0 x 7.5 x 8.0 x 7.8 x 1.5 x 7% 20% -26% GS Holdings NR 078930-KR 6.2 11.8 KRW 73,100.00 NR 2.3% NR 6.5 x 6.2 x 7.1 x 7.1 x 0.9 x 7% 11% 82% Thai Oil NR TOP-TH 5.1 9.5 THB 84.00 NR 4.6% NR 6.0 x 5.8 x 9.9 x 10.4 x 1.5 x 13% 12% 7%

Petrochemicals - APAC 8.4 x 7.9 x 13.6 x 13.9 x 1.7 x 4% 11% 9% Shin-Etsu Chemical Outperform 4063-JP 39.7 104.7 JPY 10,335.00 11,750.00 1.3% 15% 8.7 x 7.4 x 20.0 x 17.3 x 1.9 x 2% 11% -41% Nan Ya Plastics Underperform 1303-TW 19.5 19.1 TWD 74.80 59.00 4.8% -16% 9.9 x 10.6 x 15.9 x 17.5 x 1.7 x 4% 5% 10% LG Chemicals Outperform 051910-KR 22.5 65.7 KRW 329,000.0 370,000.0 1.6% 14% 5.9 x 5.6 x 12.0 x 11.6 x 1.6 x 3% 16% 6% Formosa Plastics Neutral 1301-TW 19.2 18.6 TWD 91.50 85.00 5.3% -2% 10.8 x 11.2 x 15.8 x 16.7 x 1.8 x 4% 5% 28% Formosa Chem & Fibre Underperform 1326-TW 17.4 20.5 TWD 90.80 78.00 5.8% -8% 8.2 x 8.7 x 15.2 x 16.3 x 1.6 x 8% 7% 3% Lotte Chemical Outperform 011170-KR 11.1 49.0 KRW 362,500.0 610,000.0 1.2% 69% 3.8 x 3.8 x 5.3 x 5.2 x 1.1 x 10% 19% 7% PTTGC NR PTTGC-TH 9.3 22.7 THB 70.00 NR 4.8% NR 6.4 x 6.1 x 9.8 x 9.6 x 1.2 x 10% 11% 16% Siam Cement NR SCC-TH 35.9 25.9 THB 500.00 NR 3.9% NR 8.6 x 8.4 x 10.8 x 11.0 x 2.2 x 3% 13% 53%

Telecoms 7.6 x 6.7 x 15.8 x 14.7 x 2.2 x 7% 7% 45% China Mobile Outperform 941-HK 220.9 160.6 HKD 84.25 112.00 3.5% 36% 4.0 x 3.6 x 12.9 x 11.5 x 1.5 x 7% 12% -47% SoftBank Outperform 9984-JP 90.4 519.4 JPY 9,224.0 10,900.0 0.5% 19% 7.3 x 6.7 x 15.1 x 12.5 x 2.3 x 7% 6% 244% Vodafone Underperform VOD-GB 78.3 162.8 GBP 2.26 1.70 5.8% -19% 7.6 x 7.5 x 41.7 x 28.4 x 1.1 x 8% 4% 45% SingTel Outperform Z74-SG 46.7 59.9 SGD 3.91 4.32 4.6% 15% 10.1 x 9.6 x 15.8 x 14.7 x 2.2 x 4% 7% 37% Bharti Airtel NR 532454-IN 25.5 2.7 INR 411.15 NR 0.4% NR 7.7 x 6.7 x 52.3 x 33.6 x 2.3 x 3% 8% 130% Reliance Comm. NR 532712-IN 0.9 1.7 INR 24.25 NR 0.0% NR 13.0 x 12.5 x na na 0.2 x 27% na 163%

Refining & Marketing - Developed Markets 8.1 x 7.2 x 19.7 x 14.4 x 1.9 x 4% 9% 37% Phillips 66 NR PSX-US 42.8 205.1 USD 82.85 NR 3.3% NR 10.2 x 8.5 x 20.5 x 14.4 x 1.9 x 2% 9% 37% Valero Energy Outperform VLO-US 30.3 311.1 USD 67.78 73.00 4.1% 12% 6.6 x 5.7 x 16.2 x 12.1 x 1.6 x 6% 9% 21% Marathon Petroleum NR MPC-US 28.7 247.0 USD 55.34 NR 2.7% NR 7.4 x 7.2 x 19.7 x 16.3 x 2.2 x 4% 8% 65% Neste Underperform NESTE-FI 11.2 25.8 EUR 37.51 29.00 3.4% -19% 8.7 x 8.8 x 15.7 x 16.5 x 2.5 x 6% 16% 10% Tesoro Outperform TSO-US 15.5 214.9 USD 96.99 107.00 2.3% 13% 8.1 x 6.2 x 19.8 x 14.0 x 1.6 x 0% 9% 77% Industries Reliance

Integrated Oil Majors - Developed Markets 7.6 x 6.4 x 20.3 x 19.6 x 1.2 x 5% 6% 25% Exxon Mobil Underperform XOM-US 339.5 1,083.8 USD 80.12 70.00 3.8% -9% 9.0 x 8.1 x 22.7 x 19.6 x 1.9 x 3% 8% 21% Royal Dutch Shell Neutral RDSB-GB 223.8 156.6 GBP 20.87 21.50 7.2% 10% 8.2 x 9.6 x 15.3 x 16.8 x 1.2 x 8% 6% 29% Chevron Neutral CVX-US 195.6 718.3 USD 103.25 105.00 4.2% 6% 7.6 x 6.4 x 26.8 x 20.9 x 1.3 x 5% 5% 24% Total SA Outperform FP-FR 124.0 294.5 EUR 42.72 50.00 5.5% 23% 6.2 x 6.3 x 11.7 x 13.9 x 1.2 x 7% 7% 25% BP p.l.c. Underperform BP-GB 114.5 206.6 GBP 4.46 4.00 6.8% -4% 5.7 x 5.9 x 20.3 x 25.8 x 1.2 x 5% 5% 39% 8 Source: FactSet, Company data, Macquarie Research, July 2017. Shares priced on 21-July. Consensus data used for stocks not rated (NR) by Macquarie.

Macquarie Research Reliance Industries

Consolidated Earnings Outlook We project Reliance’s consolidated EBITDA to increase 1.9x over the next five years, with growth supported by the commissioning/ramp-up of the following projects: (1) petcoke gasification (refining), (2) refinery off-gas cracker, (3) paraxylene expansion, (4) ethane imports, (5) organized retail floor space additions, and (6) JIO. At the EBIT line growth is diluted to 10%/3%/10% for FY18/19/20e due to the amortization headwind for JIO once the operations are deemed commercial. Fig 13 1.9x EBITDA expansion in next five years; Refining and petchems contribution to group EBITDA still dominant at c.85%, EBIT contribution at 110% in FY20e

Source: Company data, Macquarie Research, July 2017

Fig 14 Despite good EBITDA growth, amortization expenses for JIO a near-term headwind to RIL’s EBIT outlook

Source: Company data, FactSet, Macquarie Research, July 2017

25 July 2017 9 Macquarie Research Reliance Industries

(1) Refining

. Constructive APAC refining view – c.US$7 per barrel FY18-20E. . US$11.3/11.7/12.8 per barrel GRM for Reliance in FY18/19/20E with product crack and slate improvement partly offset by tighter crude differentials. . Petcoke gasification project improves EBITDA per barrel by US$2.5 long-term. . 4%/1%/11% FY18-20E Y/Y segment EBITDA. Expansion led by opex savings due to petcoke gasification project. Tighter crude differentials a drag in FY18. . 18% average ROIC FY18-20e, versus average 14% since FY05.

Fig 15 17% refining segment EBITDA expansion by FY20e Refining Y/Y EBITDA movements (Rs., billion) FY17 FY18 FY19 FY20 FY0 EBITDA 268 286 299 301 Petcoke gasification savings 0 32 19 8 Product Crack vs. Light Crude ∆ -19 41 -15 6 Crude Sourcing / Light-Heavy ∆ 1 -49 3 16 Inventory ∆ 23 -5 -1 4 FX / Other 14 -6 -3 -1 FY1 EBITDA 286 299 301 334

Y/Y change 7% 4% 1% 11% Fig 16 Refining & Marketing EBITDA, EBIT outlook – growth led by petcoke gasification; tighter crude differentials a near-term drag

Source: Company data, Bloomberg, Macquarie Research, July 2017. Note: Estimates from FY18

Constructive APAC refining view Macquarie positive We forecast benchmark Asian refining margins to average a solid c.US$7.0 per barrel till on APAC refining till 2020e. Our analysis indicates excess capacity East of Suez (Asia Pacific + Middle East) will 2020 continue to decline till at least 2020 – we model a four-year cumulative 2.0 million b/d of capacity additions versus 3.5 million b/d demand growth. This in-turn leads to an improvement in Asian refinery utilization to a robust 88%, up 400 basis points versus the average since 2000. For details on Macquarie’s constructive Global/Asia refining supply- demand and margin outlook refer to Global Refining – Expansions outweighed by demand and Who says elephants can’t dance? 25 July 2017 10 Macquarie Research Reliance Industries

Fig 17 Falling refining excess capacity in APAC and Middle East supports a constructive refining margin view

Source: OGJ, FGE, BP Stat Review, MEED, Reuters, Bloomberg, Company data, Macquarie Research, July 2017

~US$11-14 per barrel FY18-22E margin outlook for RIL We model Reliance’s refining margin based on outlooks for individual end-product crack (relative to Dubai). We then adjust the bottom-up margin estimate for crude grade differentials and inventory movements. Robust margins FY18E: US$11.3/bbl, +$0.3Y/Y, with the benefit of petcoke gasification and our modelled even with tighter L- improvement in product cracks partly offset by tighter light-heavy crude differentials. H spreads FY19E: US$11.7/bbl, +$0.4 Y/Y, due to better diesel cracks and higher contribution from petcoke gasification. FY20-22E: US$13-14/bbl, with the further expansion due to full benefit of petcoke upgradation and an assumed normalization of light-heavy spreads. This margin estimate represents an average US$6-7 per barrel premium to our Asian refining margin forecast. 25 July 2017 11 Macquarie Research Reliance Industries

Fig 18 We expect ~US$11.3/11.7/12.8/14.0 per barrel GRM for Reliance in FY18/19/20/LT

Source: Company data, Bloomberg, Macquarie Research, July 2017. Note: Estimates from FY18

FY18 base case expectation: . Product cracks (relative to Dubai) – In aggregate our bottom-up product crack modelling implies no meaningful improvement versus FY17. Compression of . Grade differentials – Following the production cuts from OPEC since the start of the Light-Heavy crude 2017, we note a tightening of crude grade differentials -- Arab Light-Heavy $1.1, lowest differentials a drag since end-2009; Brent-Dubai close to par vs. +$2.6 5-year average. We expect these for RIL’s refining lower-than-normal differentials to persist until OPEC starts to ramp supply (2Q18e). Tighter margins light-heavy crude differentials is a net-negative for complex refiners (Reliance) that are capable of processing cheaper crudes. For FY18e, we assume a US$1.5/bbl crude grade advantage for RIL, down from US$3.0 in FY17 and US$2.5 5-year average. . Inventory movements – At Macquarie’s flat c.US$50/bbl oil price deck till 2019 and RIL’s relatively short inventory window (7 days) we see no significant inventory impacts. . Petcoke gasification (page 13-14) adds US$2.5/bbl long-term, c.US$1.0 for FY18e. . Every US$1 per barrel change in RIL’s refining margin makes a 5.4%/4.6% impact on FY18-19E group EBITDA.

Petcoke gasification project improves EBITDA per barrel by US$2.5 Objective: Lower refinery opex / cost of internal power generation by displacing LNG. What is RIL doing? Installing 10 gasifiers (E-Gas, partner CB&I) at its refinery (4 in DTA refinery, 6 in SEZ) and 5 air separation units (partner Linde) to convert petcoke produced on-site to synthetic gas (syngas – mixture of hydrogen, carbon monoxide, carbon dioxide). This syngas will be: (a) used to displace higher cost LNG in local power generation, and (b) further processed to yield hydrogen, synthetic natural gas, and other chemicals. Timeline: 2QFY18E commissioning.

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Fig 19 RIL Integrated Gasification Project Schematic

Ethane (C2) MEG and equivalents Olefins Off-Gas Cracker LDPE US$700 to H 2 1100/ton LLDPE

Syngas/cogen fuel

Petcoke Crude: H Ammonia/Urea US$50/bbl 2 Acetic acid Refinery Gasification US$365/ton SNG Methanol/ DME MTO Syngas/cogen fuel Oxo-alcohols LNG-Petcoke Spread Syngas/cogen fuel ~US$300/ton

Return PX Aromatics Paraxylene US$700 to Reformate 900/ton Benzene

Source: Company data, Macquarie Research, July 2017. PX – Paraxylene, LDPE – Linear Density Polyethylene, LLDPE - Linear Low Density Polyethylene, MEG – Monoethylene Glycol, Syngas – Synthetic natural gas,

In Fig 21 we show the standalone impact of RIL’s petcoke regasification project. See Petrochemicals section for impact of Off-Gas Cracker and PX projects. Petcoke gasification Key project considerations: project the key . Input(s): Petcoke produced from refinery, petcoke/low-grade coal sourced externally (65:35 incremental driver feed blend flexibility), oxygen (from the air separation units). for RIL’s refining profits . Output(s): Syngas for use in power generation or further processed to yield hydrogen, synthetic natural gas (SNG, via methanation of syngas), methanol, ammonia, acetic acid. . Long-run per ton economics: LNG gross cost saving (US$370/ton) + syngas for process heaters (US$340/ton) versus petcoke cost US$95/ton (tied to MacQ coal price forecast, $130 syngas equivalent) and opex US$35/ton. Blended project EBITDA ~US$190/ton. Implications . Reported refining GRM increases by US$1.0/1.6/2.5 in FY18/19/long-term. We note this estimate is about 20% lower versus estimates at the start of 2017 due to higher domestic petcoke prices. . Group EBITDA increases by US$500/780/1200 million in FY18/19/LT or +7%-17% versus FY17a. Fig 20 Petcoke Gasification Project Sensitivities Refinery EBITDA per barrel impact (US$) Project IRR sensitivity $ per ton Petcoke $ per ton Petcoke $/mmbtu LNG 60 70 80 95 100 120 $/mmbtu LNG 60 70 80 95 100 120 2.5 -37% -26% -16% 0% 5% 26% 13% -37% -26% -16% 0% 5% 26% 7.5 -29% 2.4 2.2 2.0 1.6 1.5 1.0 7.5 -29% 13% 12% 10% 8% 7% 3% 8.5 -19% 2.7 2.5 2.3 1.9 1.8 1.3 8.5 -19% 15% 14% 12% 10% 9% 5% 9.5 -10% 3.0 2.8 2.6 2.2 2.1 1.6 9.5 -10% 17% 15% 14% 12% 11% 7% 10.5 0% 3.3 3.1 2.8 2.5 2.4 1.9 10.5 0% 18% 17% 16% 13% 13% 9% 11.5 10% 3.6 3.4 3.1 2.8 2.7 2.2 11.5 10% 20% 19% 17% 15% 14% 11% 12.5 19% 3.9 3.7 3.4 3.1 3.0 2.5 12.5 19% 22% 20% 19% 17% 16% 13%

Source: Company data, Macquarie Research, July 2017

25 July 2017 13 Macquarie Research Reliance Industries

Fig 21 Petcoke Gasification project economics

Petcoke Gasification Capex (US$, billion) 6.0 Estimated Project IRR (base) 13% Pricing Assumptions FY18E FY19E FY20E Long-term Comments Brent (US$/bbl) 52.0 48.9 53.8 65.0 Macquarie commodities team estimate LNG (US$/mmbtu) 7.8 7.3 8.1 9.1 LNG (US$/ton) 398 374 411 464 Methane, Ethane average (US$/ton) 301 298 299 340 Proxy used for SNG Petcoke, ex-works (US$/ton) 108 94 94 94 RIL petcoke price data LNG-Petcoke spread (US$/ton) 290 279 317 370 Operationals FY18E FY19E FY20E Long-term Number of petcoke gasifiers (#) 10 10 10 10 Petcoke input (million tons/pa) 6.0 8.6 8.6 8.6 ~75% captive feed; low-grade coal also considered Syngas produced (mmscmd) 16.2 23.2 23.2 23.2 Syngas produced (mn ton LNG equiv./pa) 4.4 6.3 6.3 6.3 Petcoke slurry + O2 % of RIL total refined products production 7% 10% 10% 10% … LNG replaced in powergen (mn tons) 2.3 3.3 3.3 3.3 Syngas for refinery cogen power plant … Syngas for other uses (mn tons) 2.1 3.0 3.0 3.0 SNG, H2, acetyl chemicals etc. Opex (US$/ton) 25 25 25 25 Per guidance Economics per ton of syngas produced (US$) LNG cost savings 290 279 317 370 Use of lower cost petcoke for powergen Syngas for petchems, other 301 298 299 340 Credit for petchem heat fuel, acetyl chemicals Average savings / internal realization 295 288 308 355 Petcoke cost -147 -129 -129 -129 Scaled for petcoke:syngas pdtn ratio Opex -34 -34 -34 -34 Gross Spread (US$/ton) 113 125 145 192 Gross Margin (US$/ton) - system impact 8 12 14 19 Above scaled for total refined products production Gross Margin (US$/bbl) - system impact 1.0 1.6 1.9 2.5

Financials (US$ million) LNG cost savings 661 911 1,033 1,205 Syngas for petchem process heaters, other 633 896 899 1,022 Petcoke cost -647 -809 -809 -809 Operating cost -150 -214 -214 -214 EBITDA 497 783 909 1,204 % of FY17E Refining EBITDA 11% 18% 21% 27% % of FY17E Group EBITDA 7% 11% 13% 17%

Depreciation -210 -300 -300 -300 EBIT 287 483 609 904 Return on Investment 5% 8% 10% 15% Source: Company data, IHSMarkit, Macquarie Research, July 2017

17% segment EBITDA expansion by FY20e, 18% average ROCE We show our refining segment financials in Fig 22 below. Put together, by FY20e we model RIL’s segment EBITDA to expand 17% versus FY17e. As summarized in Fig 15, the key drivers of this growth are the petcoke gasification project and our constructive view on product cracks, while tighter crude differentials represents a near-term drag. Against an average 14% segment ROCE over the past ten years (range 7%-21%), our modelling implies an average 18% ROCE FY18-20E.

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25 July 201725 Research Macquarie Fig 22 Reliance: Refining & Marketing Segment Financial Summary

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 REFINING & MARKETING (Mar-11) (Mar-12) (Mar-13) (Mar-14) (Mar-15) (Mar-16) (Mar-17) (Mar-18) (Mar-19) (Mar-20) (Mar-21) (Mar-22) (Mar-23)

Refining Operationals

Capacity, Utilization, & Volumes

Nameplate Refining Capacity (mtpa) 60 60 60 60 60 60 60 60 60 60 60 60 60 Nameplate Refining Capacity (kb/d) 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233

Crude Throughput (million tonnes) 67 68 69 68 68 70 70 70 70 70 70 70 70

Refinery CDU Utilization (%) 111% 113% 114% 114% 113% 116% 117% 117% 117% 117% 117% 117% 117%

Refined Products Production (million tonnes) 61 62 63 62 62 64 64 64 65 65 65 65 65

Margins Singapore GRM benchmark (US$/bbl) 5.1 7.9 7.8 5.9 6.3 7.5 5.8 6.1 6.5 6.8 6.8 6.8 6.8

RIL Gross Refining Margin - reported (US$/bbl) 8.4 8.6 9.2 8.1 8.6 10.8 11.0 11.3 11.7 12.8 13.7 14.1 14.0 RIL Delta to Singapore GRM (US$/bbl) 3.3 0.8 1.3 2.2 2.3 3.3 5.2 5.2 5.2 6.0 6.9 7.3 7.2

Gross Refining Margin vs. Dubai (US$/bbl) 6.3 7.9 8.0 6.4 6.9 8.0 6.9 7.0 7.7 7.9 7.7 7.5 7.5 Crude Grade Differentials (US$/bbl) 2.8 1.3 1.3 1.8 3.3 3.0 3.0 1.4 1.5 2.0 2.5 3.0 3.0

Inventory Gain / Loss (US$/bbl) 0.1 -0.2 -0.2 -1.0 -0.5 0.2 0.0 0.0 0.1 0.1 0.1 0.0

Location / Freight advantage (US$/bbl) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

Petcoke Gasification (US$/bbl) 0.0 1.0 1.6 1.9 2.5 2.5 2.5

Margin Delta vs. Forecast - Slate/Specs (US$/bbl) -1.8 -1.6 -0.9 -0.9 -1.6 -0.6 0.0 1.1 0.0 0.0 0.0 0.0 0.0

Segment Financials (Rs, million)

Gross Margin 171,397 189,185 229,675 228,454 245,341 336,801 361,154 366,445 382,986 419,096 451,039 464,435 463,792

Operating Expenses, Other -40,007 -48,655 -57,035 -60,454 -54,411 -69,041 -75,004 -78,584 -82,134 -85,556 -85,556 -85,556 -85,556 Opex per bbl (US$/bbl) 1.8 2.0 2.1 2.0 1.7 2.1 2.1 2.3 2.4 2.5 2.5 2.5 2.5

EBITDA 131,390 140,530 172,640 168,000 190,930 267,760 286,150 298,731 300,852 333,540 365,483 378,879 378,235

Depreciation & Amortization -39,670 -43,980 -44,340 -44,040 -32,660 -32,420 -35,590 -46,051 -47,429 -48,118 -48,790 -48,820 -48,850

EBIT 91,720 96,550 128,300 123,960 158,270 235,340 250,560 252,680 253,423 285,422 316,693 330,058 329,386

Capital Employed (as defined by RIL) 733,250 744,830 674,210 677,470 1,269,370 784,870 1,015,571 1,066,118 1,081,612 1,096,719 1,097,399 1,098,061 1,098,708

ROA 7% 7% 9% 9% 9% 13% 12% 10% 10% 11% 12% 13% 13% Reliance ROACE (as defined by RIL) 10% 10% 14% 14% 12% 18% 21% 18% 18% 20% 22% 23% 22% Source: Company data, Macquarie Research, July 2017. Note: Estimates from FY18

Industries

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25 July 201725 Research Macquarie Fig 23 Singapore Benchmark Margin and Product Cracks

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(2) Petchems

. Segment profit forecast based on Macquarie and industry consultant IHSMarkit supply- demand and product-by-product margin outlooks. . Three new projects add to segment earnings from FY18: (1) Refinery off-gas cracker (1.7mtpa downstream capacity), (2) Paraxylene (2.2 mtpa), (3) Ethane imports / cracker feedstock reconfiguration. . 25% cumulative petchem production volume growth in FY18-19 following commissioning of refinery off-gas cracker project and Paraxylene project. . US$525-540 per ton weighted average integrated gross margin versus US$550/T average since FY05. Declines in long-chain polymer, polyester, elastomer spreads in FY18 are largely offset by an improvement in the underlying end-product mix—PE, Fiber intermediates (for external sale)—and rising contribution of cheap ethane feedstock. . c.60% FY18-20e cumulative segment EBITDA growth despite benign spread outlook explained by operating leverage to rising production. Segment EBITDA +34%/15%/2% Y/Y in FY18/19/20e. 21% average ROIC FY18-20e, versus average 16% since FY05.

Fig 24 Petrochemical EBITDA movements—despite flattish spreads… significant growth due to volume expansion and feedstock cost savings Petchems Y/Y EBITDA movements (Rs., billion) FY17 FY18 FY19 FY20 FY0 EBITDA 137 165 221 255 Off-gas Cracker Commissioning 0 28 24 0 Polyester, Paraxylene Expansion 11 22 11 0 Cost savings from Ethane imports 0 16 -2 4 Polymer spread ∆ 1 -6 4 0 Polyester spread ∆ 1 -5 -3 -2 Elastomer spread ∆ 10 -5 -3 0 FX / Other / Eliminations 5 6 2 2 FY1 EBITDA 165 221 255 260

Y/Y change 20% 34% 15% 2% Fig 25 Reliance Petrochemicals EBITDA, EBIT outlook—meaningful growth in FY18-19

Source for above: Company data, Macquarie Research, July 2017. Note: Estimates from FY18

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Volumes / Incremental Capacity Additions We estimate group petchem production to increase 19%/5% in FY18/19 underpinned by the commissioning of RIL’s refinery off-gas cracker and paraxylene projects. Project-1: Refinery Off-Gas Cracker Project Off-gas cracker What is RIL doing? Commissioning a new 1.5 million ton/pa (mtpa) ethylene cracker project drives (Technip) and downstream units to produce (a) polyethylene (LDPE 0.40mtpa, LLDPE petchem volume 0.55mtpa) and (b) intermediate MEG (0.73mtpa) for its polyester business. This cracker is growth integrated with RIL’s Jamnagar refinery and will use refinery off-gases (ethane, propane) as feedstock. The project is mechanically complete and we assume 2QFY18E commissioning. Project Implications: . Downstream/intermediate petchem products production capacity expands by 8%. . At full capacity, this project adds US$900 million to group EBITDA, under our base case chemical spread assumptions (Fig 27). . The impact on RIL consolidated EBITDA is 6%/12%/13% in FY18/19/LT.

Fig 26 35% cumulative production volume growth following commissioning of off-gas cracker and PX projects

Source: Company data, Macquarie Research, July 2017. Note: Estimates from FY18.

Project-2: Paraxylene Expansion PX 3-train project What is RIL doing? Commissioning a three-train 2.2 mtpa Paraxylene unit (CB&I, BP) and live from Jun-17 0.55 mtpa Benzene unit. This unit is integrated with RIL’s Jamnagar refinery and will use naphtha/reformate as feedstock. RIL commissioned the final train of this project in June 2017. Project Implications: . Doubling of RIL’s PX production capacity. Now #2 player globally with 11% share. . At full capacity this project adds US$500 million to group EBITDA, under our base case chemical spread assumptions (Fig 27). . The impact on RIL consolidated EBITDA is 5-7% in FY18-19/LT. 25 July 2017 18 Macquarie Research Reliance Industries

Fig 27 Reliance Petchem Project Expansions Petchem Projects Generic Pricing Assumptions (US$/ton) FY18E FY19E FY20E Long-Term Naphtha 470 442 487 588 Ethane 326 321 323 405 Propane 492 462 508 614 Ethylene 1069 1108 1100 1100 MEG 745 716 761 862 LDPE 1179 1092 1137 1238 LLDPE 1160 1037 1084 1186 PX 886 862 907 1008 Benzene 793 800 845 946 Aromatics 594 562 607 708 New Projects EBITDA (US$, mn) 1,026 1,547 1,685 1,746 Refinery off-gas cracker + PX + Ethane imports % of FY17E Petchems EBITDA 41% 61% 67% 69% % of FY17E Group EBITDA 14% 22% 24% 25% 1) Refinery Off-Gas Cracker (ROGC) Capex (US$, billion) 5.5 Estimated Project IRR (base) 11% Ethylene Cracker Capacity (million tons/yr) 1.40 1.40 1.40 1.40 MEG (million tons/yr) - downstream 0.73 0.73 0.73 0.73 LDPE (million tons/yr) - downstream 0.40 0.40 0.40 0.40 LLDPE (million tons/yr) - downstream 0.55 0.55 0.55 0.55 Refinery off-gas / NGL feedstock (mtpa) 0.89 1.77 1.77 1.77 1.27 ethane feedstock for 1 ethylene Ethylene Production - intermediate (mtpa) 0.70 1.40 1.40 1.40 All production internally consumed MEG production (mtpa) 0.37 0.73 0.73 0.73 1.0 MEG from 0.65 Ethylene and 0.67 O2 LDPE production - end product (mtpa) 0.20 0.40 0.40 0.40 1.0 LDPE from 1.01 Ethylene LLDPE production - end product (mtpa) 0.28 0.55 0.55 0.55 1.0 LLDPE from 1.01 Ethylene Financials (US$ million) MEG revenue 272 523 555 629 LDPE revenue 236 437 455 495 LLDPE revenue 319 571 596 652 Feedstock cost -289 -569 -573 -718 Opex -100 -143 -143 -143 Opex per ton assumed well below current avg. EBITDA 437 819 891 916 % of FY17E Petchems EBITDA 17% 32% 35% 36% % of FY17E Group EBITDA 6% 12% 13% 13% 2) Paraxylene Expansion Capex (US$, billion) 5.5 CB&I / BP crystallisation technology Estimated Project IRR (base) 5% Paraxylene - 3 trains (mtpa) 2.20 2.20 2.20 2.20 Final train commissioned in Jun-17 Benzene (mtpa) 0.56 0.56 0.56 0.56 Financials (US$ million) PX revenue 1,364 1,897 1,995 2,218 Intermediate for Polyester production Benzene revenue 311 448 473 530 Feedstock cost -1,150 -1,564 -1,687 -1,967 Reformate from refinery Opex -185 -265 -265 -265 Opex per ton lower than group average EBITDA 340 516 516 516 % of FY17E Petchems EBITDA 13% 20% 20% 20% % of FY17E Group EBITDA 5% 7% 7% 7% 3) Ethane Imports Capex (US$, billion) 1.5 Estimated Project IRR (base) 15% Ethane Vessel Fleet (#) 6 6 6 6 Ethane Vessel Operational (#) 6 6 6 6 All vessels atleast one-charter done (Jul-17) Ethane Shipping Effective Capacity (mtpa) 1.5 1.5 1.5 1.5 Ethane-Propane spread (US$/mt) -166 -142 -185 -209 Including shipping + processing cost Cost saving / EBITDA accretion 248 213 278 314 % of FY17E Petchems EBITDA 10% 8% 11% 12% % of FY17E Group EBITDA 3% 3% 4% 4% Source: Company data, Macquarie Research, July 2017

25 July 2017 19 Macquarie Research Reliance Industries

Petchem Margin Chains We model RIL’s integrated margin based on product-by-product long-chain delta / margin relative to naphtha, followed by a naphtha–NGLs feedstock cost adjustment. Flat long-chain / On our base case product spread assumptions, RIL’s petchem weighted average gross integrated petchem margin is effectively flat at US$525per ton in FY18-19e and US$550/T average since margins FY05. The declines this year in elastomers chain (following an abnormally strong 2HFY17) and a modest correction in polymers and polyesters is offset by an improvement in volume mix and better fiber intermediate spreads (for external sale). For details on the spread outlook for individual products see our Global Petchems Market Outlook (Jan-17). In Fig 28 below, we show long-chain/integrated margin trends with individual impacts scaled to RIL’s specifications. In pages 23-24, we show our operational dashboard for underlying gross polymer and polyester prices and spreads (not weighted for RIL).

Fig 28 Reliance Petrochemical Spreads – long-chain margins to remain near historical averages

Source: IHSMarkit, Company data, Macquarie Research, July 2017. Estimates from FY18

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Project-3: Ethane vessel additions to lower feedstock costs Ethane import . The feedstock mix for RIL’s ethylene crackers today is c. 30% naphtha, c.30% project enhances ethane/propane/butane, and the remaining 40% (Jamnagar) flexible to use either naphtha feedstock cost or gas liquids. To adjust for the use of gas-based feedstock, we add to our calculated savings integrated margin the prevailing gas liquid (NGL)-naphtha spread and weight this for the proportion of RIL’s polymer production. We estimate the use of NGL feedstock (mainly propane) added c.US$20 per ton (US$50/T un-weighted) to RIL’s overall integrated margin in FY17. . Reliance is now transforming the feedstock composition for its crackers at Hazira, Gandhar, and Nagothane to include ethane, in addition to naphtha and propane. To facilitate this, RIL has taken delivery of six custom-built vessels to ship ethane from the U.S. to Jamnagar. At capacity, these vessels enable RIL to add 1.5 million tons of ethane to its feedstock mix. . The addition of ethane to the feedstock mix will enhance RIL’s gas-based feedstock advantage. With Ethane-Propane spreads at US$150-200 per ton (including processing and transportation), we estimate feedstock cost savings of US$250-300 million for FY18- 20; 10-12% of FY17 segment EBITDA and 3-4% of RIL consolidated EBITDA. See fig 27 for simplified economics.

Summary Segment Financials Put together, we estimate RIL petchem segment EBITDA to expand 60% over the next three years, +34/15/2% Y/Y in FY18/19/20E. Our forecast growth from the commissioning of RIL’s off-gas cracker, PX units, and feedstock cost savings from ethane imports more than offset the modest downside from product spread movements. Similar to the refining segment, our modelling implies an improvement in ROCE to an average 21% in FY18-20E; average 16% (range 13%-19%) over the past ten years.

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25 July 201725 Research Macquarie

Fig 29 Reliance Petchems Summary Segment Financials

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23

PETCHEMS (Mar-11) (Mar-12) (Mar-13) (Mar-14) (Mar-15) (Mar-16) (Mar-17) (Mar-18) (Mar-19) (Mar-20) (Mar-21) (Mar-22) (Mar-23)

Total Petchems Production (million tons) 21.1 21.9 22.0 21.9 22.0 24.7 24.9 29.6 31.1 31.1 31.1 31.1 31.1

Aggregate Utilization Rate 99% 101% 99% 95% 94% 96% 90% 93% 97% 97% 97% 97% 97% Y-o-Y growth -4% 4% 0% 0% 0% 12% 1% 19% 5% 0% 0% 0% 0%

Of which... Production meant for sale -- Polymer, Polyester,9.0 Fiber9.5 Intermediates9.4 (~30%9.5 surplus), Elastomers9.6 10.8 (million tons)10.8 13.2 14.6 14.6 14.6 14.6 14.6 … % of headline production 43% 43% 43% 43% 44% 44% 43% 45% 47% 47% 47% 47% 47%

Polymer Production (million tons) 4.09 4.46 4.40 4.48 4.30 4.62 4.46 4.84 5.37 5.37 5.37 5.37 5.37

Polyester Production (million tons) 1.70 1.66 1.63 1.65 1.85 2.19 2.28 2.40 2.40 2.40 2.40 2.40 2.40 Fiber Intermediates Production (million tons) 4.50 4.76 4.76 4.71 4.88 6.43 6.89 8.93 9.51 9.51 9.51 9.51 9.51 Elastomer Production (million tons) 0.25 0.26 0.25 0.26 0.27 0.30 0.32 0.47 0.47 0.47 0.47 0.47 0.47 Other Petchem Production for sale -- benzene, orthoxylene,1.67 LAB,1.90 toluene, caustic1.90 soda 1.90 1.90 1.90 1.90 2.18 2.46 2.46 2.46 2.46 2.46 CHEMICAL MARGIN, SPREAD -- IHSMarkit, RIL, Bloomberg, Macquarie

Chemicals Gross Spead, weighted avg - calculated 588(US$/ton) 621 553 545 558 515 525 524 524 540 547 547 547 Y-o-Y growth 15% 6% -11% -1% 2% -8% 2% 0% 0% 3% 1% 0% 0%

Polymer Spread, weighted avg. (US$/ton) 544 487 511 570 629 613 616 597 610 610 611 613 613 Polyester Integrated Margin (US$/ton) 968 916 755 689 698 632 639 610 592 582 568 557 557 Elastomer Spread, weighted avg. (US$/ton) 1,218 1,798 967 517 451 428 883 704 613 613 613 613 613 Other spread: Aromatics-Naphtha (US$/ton) 18 91 140 82 77 147 118 124 120 120 120 120 120 Naphtha-NGLs differential for gas crackers (US$/ton)-44 9 -33 -31 -20 -22 6 29 68 109 125 122 122 Segment Financials (INR million)

Gross Margin (Calculated) 237,910 280,796 278,966 307,238 328,289 355,170 382,358 448,463 497,791 512,554 520,000 519,931 519,841

Operating Expenses, Other -122,710 -169,746 -185,106 -200,588 -217,359 -218,050 -217,708 -230,792 -242,560 -252,667 -252,667 -252,667 -252,667

EBITDA 115,200 111,050 93,860 106,650 110,930 137,120 164,650 221,042 255,231 259,887 267,334 267,265 267,174 EBITDA Margin (US$/MT) 121 106 80 82 82 86 99 115 126 129 132 132 132

Depreciation & Amortization -22,150 -21,370 -20,580 -22,620 -28,020 -35,260 -34,750 -43,164 -49,900 -49,709 -49,525 -49,348 -49,178

Segment EBIT 93,050 89,680 73,280 84,030 82,910 101,860 129,900 177,878 205,331 210,179 217,809 217,917 217,996 EBIT Margin (US$/MT) 98 86 62 64 62 64 78 92 102 104 108 108 108

Capital Employed (as defined by RIL) 397,630 352,190 419,600 477,470 464,900 455,420 570,440 659,453 656,924 654,495 652,160 649,917 647,761

Reliance Industries Reliance ROA 16% 16% 13% 12% 11% 11% 10% 11% 12% 12% 13% 13% 13% ROACE (as defined by RIL) 18% 19% 15% 15% 13% 17% 19% 22% 23% 24% 25% 25% 25% Source: Company data, Macquarie Research, July 2017. Estimates from FY18

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25 July 201725 Research Macquarie Fig 30 Polymer Integrated Margin dashboard

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25 July 201725 Research Macquarie Fig 31 Polyester Long-Chain Margin dashboard

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(3) Telecom (JIO)

. Top-down revenue modelling. Cost structure benchmarked against Airtel, Idea. . JIO subscriber base assumed at 150 /235 million by FY20/25, from 125 million today, at 25%/30% overall India mobile broadband market share. . EBITDA contribution rises to c.30% of group along with higher revenue by FY25. . Significant depreciation & amortization headwind leaves EBIT in the red till FY21. . Cash return on capital employed (CROCE) expands to 9%/18% by FY20/25; ROIC - 1%/15%. . We note high modelling error risk and outline what-if scenarios on page-28. (a) 50% India data revenue market share? +80% standalone JIO EBITDA impact, +34% RIL consolidated EPS on our base case FY25 estimates. (b) Content optionality? Every Rs.100 billion of revenue adds 20% to standalone JIO EBITDA and 5% to group EPS. (c) 50% JIO EBITDA margin – well above Airtel’s 35%? Every 100bps change in margin has a 2.5%/0.5% impact on standalone JIO EBITDA and consolidated EPS.

Fig 32 Telecom (JIO) EBIT breakeven to take at least 4-5 years

Source: Company data, Macquarie Research, July 2017

JIO Revenue Modelling Assumptions Our full modelling assumptions are shown on page 29, below we outline the main drivers: . India total mobile connection growth of 6% pa till FY20 (8% pa FY15-17 average), about in line with estimates published by industry consultants GSMA. . Within this, c.300 million new unique mobile subscribers added by FY20–1.5x the growth in China. Unique user penetration rises about 10 percentage points from today to reach 68%. . The proportion of mobile broadband users in India has grown from 16% to 35% in the past five years along with a gradual reduction of tariffs and the widening range of low-cost smartphones. We assume mobile broadband penetration reaches 43% by FY20 (in line with GSMA) and 50% by FY25.

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Can the exceptional . Reliance JIO has seen exponential growth from the get-go due to its free plan offers. JIO’s growth momentum subscriber base has ramped to 125 million subscribers in the space of three quarters and for JIO be accounts for 10% of total connections and 27% of mobile broadband users in India. extrapolated? . At 30% India mobile data user market share by FY25, the number of JIO subscribers would increase to c.240 million by FY25, or twice today’s level. . The top-3 operators in India today have a c.60% market share. We assume the market share gains for RIL would largely be from players outside the top-3. . Our monthly revenue per user assumption is based on the average of JIO’s Rs.399 for 84 days plan on offer today and the proposed Rs.153/m plan for JioPhone users. We assume monthly revenue per user increases 10% pa in our forecast horizon, as RIL potentially monetizes additional apps/content. However in view of ongoing high industry competition we note downside risk to this assumption. . JioPhone – we view this as an enabler for JIO’s rural / ‘bottom of the pyramid’ penetration aspirations rather than a significant revenue contributor. We assume 30% of JIO’s subscribers opt for JioPhone. Given the Rs.1500 up-front deposit is refunded in 3 years we see the cash flow impact similar to long-dated accounts payable. . Separately, we have also pencilled in revenue for JIO digital TV and business services.

Fig 33 JIO subscriber modelling: 240 million subscribers by FY25 if market share ramps to 15%

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

JIO Cost Assumptions Our cost structure estimates for JIO are developed using Airtel and Idea as a reference. . Access Charge – 11% of gross revenue . License Fees – 8% of net revenue . Spectrum Usage Charge – 3% of net revenue . Network operation cost – High fixed cost, 20% of steady-state revenue, c.300 bps below Airtel and Idea due to 4G-only network. . Employee and other opex as % of revenue assumed gradually fades (along with higher revenue) to be in line with Airtel by FY25. >50% EBITDA EBITDA, EBIT outlook margin per JIO aspiration . JIO EBITDA margin of ~10-15% in FY18 rising to 40-45% by FY25 (Airtel 35%, Idea 29% in FY17). For perspective, RIL aspires to achieve >50% EBITDA margin by FY21. 25 July 2017 26 Macquarie Research Reliance Industries

. Standalone JIO EBITDA of Rs.20-25 billion for FY18, rising to Rs.310 billion (on Rs.760bn revenue) by FY25, in our base case. Significant . We assume an average depreciation and amortization period of 15 years (spectrum spectrum amortized over 20 years but some of this was acquired in 2010; Airtel 9 years). This amortization translates to an annual D&A headwind of c.Rs.120 billion, albeit still subject to RIL headwind deeming JIO “commercial”. We assume D&A of Rs.90 billion for FY18-19E. . Under our modelling assumptions JIO achieves EBIT breakeven only in FY22; Rs(25)bn- (40)bn in FY18/19/20E. . JIO standalone net income breakeven only in FY23, after factoring standalone interest expenses of Rs60 billion.

Fig 34 JIO achieves EBIT breakeven only in 4-5 years, we estimate

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

Returns, Capex, FCF outlook

. Rs.100-120 billion/pa average capex modelled in our forecast horizon using the average of the following approaches – capex/sales, capex/subscriber, capex/depreciation. . Our modelling assumes capex metrics for JIO gradually falls in line with that of Airtel – 0.25x sales, c.700/subscriber, 1.1x depreciation. JIO a drag on group . Putting our EBITDA and capex estimates together, we see the drag on group FCF for FCF till FY21e FY18 at c.Rs.105 billion, FY19 at c.Rs.45bn and FY20 at c.Rs.15bn. We have JIO turning FCF positive only in FY21e. . Our estimates imply JIO standalone return on invested capital (ROIC) of 0% and 13% in FY20/25e. . Cash return on capital employed (CROCE), adjusting for depreciation and amortization, expands to 5%/14% by FY20/25e.

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Fig 35 Free cash flow drag till FY22e; cash return on capital employed gradually expands to 14% by FY25e

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

JIO what if… Given the high degree of modelling uncertainty, we outline a few scenarios below. Our estimates below reflect un-risked outcomes for FY25E. JIO guidance . JIO India data revenue market share expands to 50% by FY25 (MQ base 30%)? implies meaningful  Number of subscribers could expand to 400 million, 35% higher than our base case. upside risk to our base case  Standalone JIO EBITDA could rise to Rs.570 billion, 80% above our base assumption. Implied 50% EBITDA margin higher than base due to operating leverage on fixed network opex.  Adjusting for depreciation & amortization (Rs.130bn) and interest (Rs.60bn), standalone JIO profit before tax for could be Rs.390 billion, a very significant 3x our base case.  At the group level, our consolidated RIL EPS estimate could rise by 9-34% in FY20/25. . Amazon/Netflix style optionality?  A quick glance at JIO’s website is sufficient to envisage bullish content-related optionality scenarios. For every Rs.100 billion in incremental revenue, the impact on standalone JIO EBITDA is c.20% and RIL consolidated EPS is c.5%. . Superior cost structure translates to a 50% EBITDA margin for JIO (MQ 43%, Airtel 35%)?  Every 100bps change in JIO EBITDA margin has a 2.5%/0.5% impact on standalone JIO EBITDA and consolidated EPS. Applying a 50% EBITDA margin to our base case revenue estimate of Rs.730bn in FY25e, implies an uplift of 17% in standalone JIO EBITDA and 4% in consolidated EPS.

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Fig 36 Telecom (JIO) Financial Summary; high error risk given limited financials/guidance till date

FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 JIO Infocomm (Mar-18) (Mar-19) (Mar-20) (Mar-21) (Mar-22) (Mar-23) (Mar-24) (Mar-25)

India Total Mobile Connections - period end (million)1,204 1,272 1,342 1,387 1,433 1,479 1,526 1,573 Y-o-Y change 6% 6% 5% 3% 3% 3% 3% 3% … of which Mobile Broadband Users in India (million457) 534 581 619 659 700 743 787 Y-o-Y change 15% 17% 9% 7% 6% 6% 6% 6% % of total connections 38% 42% 43% 45% 46% 47% 49% 50% RIL JIO subscribers - period end (mn) 120 136 153 168 184 201 218 236 RIL JIO market share of total connections 10% 11% 11% 12% 13% 14% 14% 15% RIL JIO market share of mobile broadband users 26% 26% 26% 27% 28% 29% 29% 30% Segment Financials (INR million) Total Revenue 164,636 257,126 344,061 423,850 500,805 578,855 665,593 762,298 Y-o-Y growth nmf 56% 34% 23% 18% 16% 15% 15% Access charges -18,110 -28,284 -37,847 -42,385 -45,072 -46,308 -53,247 -60,984 Licence fees -11,722 -18,307 -24,497 -30,517 -36,459 -42,604 -48,988 -56,105 Spectrum usage charge -4,396 -6,865 -9,186 -11,444 -13,672 -15,976 -18,370 -21,039 Network operations costs -70,000 -90,000 -110,000 -140,000 -145,000 -150,000 -155,000 -160,000 Operating expenses -104,228 -143,456 -181,530 -224,346 -240,203 -254,889 -275,605 -298,128

Gross Profit 60,408 113,669 162,531 199,504 260,602 323,967 389,987 464,170 Gross Margin 37% 44% 47% 47% 52% 56% 59% 61% Employee Benefits -8,232 -12,856 -17,203 -21,193 -25,040 -28,943 -33,280 -38,115 Other operating expenses -32,927 -38,569 -51,609 -63,578 -75,121 -86,828 -99,839 -114,345 EBITDA 19,249 62,244 93,719 114,734 160,441 208,196 256,869 311,710 EBITDA Margin 12% 24% 27% 27% 32% 36% 39% 41% Y-o-Y growth nmf 223% 51% 22% 40% 30% 23% 21% Depreciation & Amortization -89,475 -91,231 -122,757 -122,386 -122,206 -122,351 -122,706 -123,193 EBIT (Operating Income) -70,226 -28,987 -29,038 -7,652 38,236 85,844 134,163 188,517 EBIT Margin -43% -11% -8% -2% 8% 15% 20% 25% Other Non-Operating Income 10 1,832 6,718 5,460 2,566 1,576 2,351 4,671 Interest expense -31,051 -45,051 -59,051 -62,551 -62,551 -62,551 -62,551 -62,551 Profit before Tax -101,267 -72,206 -81,371 -64,743 -21,750 24,870 73,963 130,637 Income Taxes 0 0 0 0 0 -8,207 -24,408 -43,110 Net Income -101,267 -72,206 -81,371 -64,743 -21,750 16,663 49,555 87,527 Net Income Margin -62% -28% -24% -15% -4% 3% 7% 11% ROA -5% -3% -4% -3% -1% 1% 2% 4% ROACE (as defined by RIL) -5% -2% -2% -1% 3% 7% 12% 17% Cash ROCE 1% 5% 7% 9% 11% 14% 16% 19%

JIO Cash Flows (INR million) EBITDA 19,249 62,244 93,719 114,734 160,441 208,196 256,869 311,710 Net Operating Cash Flow 19,259 64,076 100,437 120,194 163,007 201,565 234,812 273,271 Net Investing Cash Flow -124,814 -108,165 -117,405 -119,894 -124,603 -127,884 -130,227 -131,425 Net Financing Cash Flow 141,811 141,811 -8,189 -58,189 -58,189 -58,189 -58,189 -58,189 Cash inflow / (outflow) 36,257 97,722 -25,157 -57,889 -19,785 15,492 46,396 83,657 CFO - Capex (consolidated) -105,343 -43,878 -16,757 512 38,615 73,892 104,796 142,058 CFO - Capex - Dividends (consolidated) -105,343 -43,878 -16,757 512 38,615 73,892 104,796 142,058 Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

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(4) Upstream Oil & Gas

. Production today less than half of peak. Further declines till FY20E. Growth from FY21 due to ramp-up of three-phase R-series gas project (RIL 60%, BP 40%). . Mild uplift in average gas prices due to mix improvement. Oil ~$50 till 2019e. . Segment EBIT to remain in the red until start-up of R-series deepwater gas. . Possible mild upside risk to domestic gas prices; every 10% uplift makes a 0.5% impact on RIL consolidated EPS.

Fig 37 FY18-20E EBITDA to remain subdued at FY17 levels; c.25% of FY11 peak Upstream Y/Y EBITDA movements (Rs., billion) FY17 FY18 FY19 FY20 FY0 EBITDA 69 13 12 12 Gas production -17 -7 0 0 Oil production -2 -2 -1 -1 Gas Price ∆ -7 4 2 3 Oil Price ∆ 0 1 0 1 FX / Other -31 4 0 0 FY1 EBITDA 13 12 12 15

Y/Y change -82% -6% 0% 25%

Fig 38 Upstream Oil & Gas – segment EBIT to remain in the red until start-up of R-series deepwater gas

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

RIL’s total oil and gas production is now effectively half of peak levels seen in FY11. We model -5% y/y in FY18, followed by modest 1-2% declines in FY19-20 (natural declines offset by ramp of Sohagpur CBM), and then an average 22% pa growth in FY21-23 due to the start- up of R-Series deepwater gas fields (RIL 60%, BP 40%). . Production at RIL’s once flagship KG-D6 gas field is today a mere 14% of peak. Declines accelerated in FY17 (-27% Y/Y) and we assume further 10% pa declines in our forecasts. . Panna-Mukta and Tapti – Production today c.40% of peak. 15% pa declines pencilled versus -14% avg. FY16-17. PSC for Panna-Mukta expires in Dec-2019. Tapti field plug and abandonment of wells under-way and offshore platforms will be transferred to ONGC.

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. Sohagpur CBM – Phase-1 of this project involved drilling and completion of 200 wells and the installation of two gas gathering facilities. RIL plans to drill an additional 600-800 wells on the block. Commercial production started in April 2017 and the post de-watering ramp- up to peak production of c.100 million cubic feet/day (mmscfd, 12% of RIL gas production in FY17) is anticipated in 15-18 months. . R-Series deepwater gas – Notwithstanding the significant underperformance at the main KG-D6 fields, in June 2017, RIL and BP announced plans to develop the R-series deep water gas fields. The three-phase development plan entails a subsea tieback to the existing infrastructure at the KG-D6 block. RIL and BP have guided for a cumulative capex of US$6 billion for this project. Phase-1 target completion is in 2020 with peak production anticipated at 425 mmscfd. At full-capacity, 2022+, this project is expected to grow to 1 billion cubic feet/day (bcf/d), or 1.2x total gross gas production today. . U.S. shale operations – Limited/no drilling activity at JV projects with Carrizo, Chevron, and Pioneer. Cumulative gas production was down 15% y/y in FY17. We do not assume any meaningful uptick in activity due to our muted ~US$3.0/mmbtu U.S. gas price outlook.

Fig 39 RIL Oil and Gas Production Outlook – structural declines till FY20, followed by growth from R-series

Fig 40 Oil & Gas Realizations – mild uplift in average gas prices due to mix improvement; oil flat

Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

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25 July 201725 Research Macquarie Fig 41 Upstream Oil & Gas Financial Summary

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 Upstream Oil & Gas (Mar-11) (Mar-12) (Mar-13) (Mar-14) (Mar-15) (Mar-16) (Mar-17) (Mar-18) (Mar-19) (Mar-20) (Mar-21) (Mar-22) (Mar-23)

Field Production

KG-D6 (60%) 8.8 5.6 3.3 2.3 2.3 1.8 1.3 0.9 0.7 0.6 0.6 0.5 0.5 Panna-Mukta, Tapti (30%) 10.5 11.0 8.7 7.8 7.4 7.0 6.3 4.7 4.0 3.6 3.3 2.9 2.6 U.S. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Oil Production - Gross (million barrels) 19.3 16.6 12.0 10.1 9.7 8.8 7.5 5.6 4.7 4.3 3.8 3.5 3.1 RIL Oil Production - Net (million barrels) 8.4 6.7 4.6 3.7 3.6 3.2 2.6 2.0 1.6 1.5 1.3 1.2 1.1 RIL Oil Production Y-o-Y % 30% -21% -31% -19% -3% -12% -17% -26% -16% -10% -10% -10% -10%

KG-D6 (60%) 720 551 336 178 158 139 101 79 71 64 61 58 55 Panna-Mukta, Tapti (30%) 147 145 115 93 85 72 63 54 43 34 31 28 25 R-Series Deepwater (60%) -- 3 phases 155 265 374 Sohagpur CBM 13 26 38 38 38 38 U.S. (net share reported) 0 0 119 161 200 205 163 135 128 122 116 110 104 Total Gas Production - Gross (bcf) 868 696 570 432 442 416 326 280 268 258 401 498 597 RIL Gas Production - Net (bcf) 476 374 355 296 320 310 242 211 209 209 293 350 408 RIL Gas Production Y-o-Y % 34% -21% -5% -17% 8% -3% -22% -13% -1% 0% 40% 20% 16%

RIL Total Oil & Gas Production (mn boe) 87.8 69.0 63.7 53.1 56.9 54.9 42.9 37.1 36.5 36.3 50.1 59.5 69.0 Y-o-Y % 34% -21% -8% -17% 7% -4% -22% -14% -2% -1% 38% 19% 16% Realizations

Oil Price Realized, average (US$/bbl) 82 109 110 106 87 48 49 52 48 53 60 65 65 Discount to Brent % -5% -5% 0% -1% 1% 0% -1% -1% -1% -1% -1% -1% -1%

Gas Price Realized, average (US$/mmbtu) 4.5 4.5 4.7 5.0 4.7 3.7 3.4 3.6 3.7 4.0 4.8 5.1 5.3 Prem/Discount to Henry Hub % 6% 18% 54% 21% 16% 47% 18% 11% 19% 24% 37% 28% 31% Segment Financials (INR million)

Segment Revenue 173,253 141,740 112,080 109,020 115,340 75,270 51,910 47,408 45,087 47,817 84,687 109,242 130,695

Opex -32,479 -37,340 -42,920 -42,100 -39,710 -6,140 -39,340 -35,579 -33,217 -32,997 -45,610 -54,160 -62,794

EBITDA 140,774 104,400 69,160 66,920 75,630 69,130 12,570 11,829 11,870 14,819 39,077 55,082 67,901

Depreciation & Amortization -73,774 -51,910 -40,280 -38,810 -43,820 -32,830 -28,410 -27,446 -29,671 -32,943 -36,002 -38,861 -41,535

Segment EBIT 67,000 52,490 28,880 28,110 31,810 36,300 -15,840 -15,617 -17,801 -18,123 3,075 16,220 26,365

Capital Employed (as defined by RIL) 607,970 398,860 493,190 630,990 719,220 361,860 359,908 389,088 431,985 472,095 509,597 544,662 577,448

ROA 9% 8% 5% 4% 3% 5% -3% -3% -3% -3% 0% 2% 3%

Reliance Industries Reliance ROACE (as defined by RIL) 10% 8% 5% 4% 4% 5% -3% -3% -3% -3% 0% 2% 4% Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

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(5) Organized Retail, Other

. includes several standalone brands in a wide range of categories: convenience stores, supermarkets, speciality electronics stores, low- and high-end fashion retail (on/offline), jewellery, footwear, etc. . Revenue has grown by an average 30% pa over the past five years, +56% in FY17. We assume an average 30% pa revenue growth till FY20E (expansion of floor space and higher per-store revenue) and stable EBITDA margins. . Despite strong standalone growth modelled, FY25e contribution of Organized Retail and other businesses to group EBIT remains below 5% in our modelling.

Fig 42 Strong growth of a low base; contribution to group EBIT to remain under 5%

FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 ORGANIZED RETAIL (Mar-14) (Mar-15) (Mar-16) (Mar-17) (Mar-18) (Mar-19) (Mar-20) (Mar-21) (Mar-22) (Mar-23)

Daycount 365 365 365 365 365 365 365 365 365 365 Exchange Rate (INR/USD) 59.5 61.1 64.5 67.0 65.0 65.0 65.0 65.0 65.0 65.0 Operationals Retail stores at the end 1,691 2,621 3,245 3,616 3,724 3,874 4,024 4,174 4,324 4,474 # of stores added 241 930 624 371 108 150 150 150 150 150 Y-o-Y % 17% 55% 24% 11% 3% 4% 4% 4% 4% 3% Average Per Store Revenue, annualized (INR Mn/store) 91.9 82.7 72.6 96.3 129.4 155.3 178.6 196.5 216.1 237.7 Y-o-Y % 17% -10% -12% 33% 34% 20% 15% 10% 10% 10% Segment Financials (INR million) Segment Revenue 144,960 176,400 216,120 337,650 476,183 593,089 708,845 809,201 922,539 1,050,453 Y-o-Y % 34% 22% 23% 56% 41% 25% 20% 14% 14% 14%

EBITDA 3,520 7,660 8,510 11,790 16,597 20,758 24,810 28,322 32,289 36,766 EBITDA Margin (%) 2.4% 4.3% 3.9% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%

Depreciation & Amortization -2,340 -3,490 -3,470 -3,950 -4,558 -4,688 -4,566 -4,478 -4,398 -4,326

Segment EBIT 1,180 4,170 5,040 7,840 12,038 16,070 20,244 23,844 27,891 32,440 EBIT Margin (%) 0.8% 2.4% 2.3% 2.3% 2.5% 2.7% 2.9% 2.9% 3.0% 3.1%

Capital Employed (as defined by RIL) 59,090 62,010 63,200 71,857 73,908 71,973 70,584 69,324 68,194 67,191 Capex 11,490 3,680 2,690 7,810 1,620 2,363 2,481 2,605 2,735 2,872

ROA 1% 4% 4% 5% 8% 10% 13% 16% 19% 23% ROACE (as defined by RIL) 2% 5% 6% 9% 12% 17% 21% 26% 30% 36% Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

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Residual Income & Sensitivities

Fig 43 RIL residual income valuation summary

(INR, billion) FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 NOPAT (adj. for impairments) 232 257 269 295 323 385 441 488 527 572 Beginning Net Operating Assets 2,348 2,903 3,171 3,472 3,713 3,931 4,076 4,211 4,313 4,411 Return on Net Operating Assets (RNOA) 9.9% 8.9% 8.5% 8.5% 8.7% 9.8% 10.8% 11.6% 12.2% 13.0% Cost of Equity - unlevered 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% Residual RNOA 0.9% -0.2% -0.6% -0.5% -0.3% 0.8% 1.8% 2.5% 3.2% 3.9% Residual Income 20 -5 -18 -19 -12 30 73 107 137 173

PV of Interim Residual Income 275 Terminal Growth Rate 4.0% PV of Terminal Value 1,947 Beginning Net Operating Assets 3,171 RIL Post-tax Cost of Debt 4.8% Beginning Net (Debt) / cash -1,408 Cost of Equity - Unlevered 9.0% Minorities -29 Cost of Equity - Levered 10.2% Equity Value (INR, billion) 3,955 WACC 8.6% Shares Outstanding #, mn 2,951 Equity Value (INR/sh) 1,340

Base Case Scenarios Refining Margin FY18 (US$/bbl) 11.3 10.6 11.0 11.3 11.7 12.9 For every $1/bbl change in margin Refining Margin FY18-20 avg (US$/bbl) 12.0 11.0 11.5 12.0 12.5 14.0 FY18 Group EBITDA 560 538 550 560 572 606 5.1% FY19 Group EBITDA 618 588 605 618 635 683 5.0% FY18 EPS (INR) 97.9 92 95 98 101 110 7.5% FY19 EPS (INR) 100.9 93 97 101 105 118 8.1% Residual Income (INR/sh) 1,340 1,187 1,272 1,340 1,425 1,664 11.6%

Petchem Margin FY18 (US$/ton) 524 472 498 524 551 629 For every 5% change Petchem Margin FY18-20 avg (US$/ton) 529 476 503 529 556 635 FY18 Group EBITDA 560 528 544 560 576 624 2.9% FY19 Group EBITDA 618 573 596 618 641 710 3.7% FY18 EPS (INR) 97.9 90 94 98 102 114 4.2% FY19 EPS (INR) 100.9 89 95 101 107 125 6.0% Residual Income (INR/sh) 1,340 1,136 1,238 1,340 1,442 1,749 7.6%

# of subscribers FY18-23 avg. (mn) 153 84 115 153 175 232 % of mobile data users FY18-23 avg. 27% 15% 20% 27% 30% 40% For every 1% change in mkt share FY18 Group EBITDA 560 546 552 560 564 575 0.2% FY19 Group EBITDA 618 574 594 618 634 675 0.7% FY18 EPS (INR) 97.9 94 96 98 99 102 0.3% FY19 EPS (INR) 100.9 90 95 101 105 115 1.1% Residual Income (INR/sh) 1,340 499 782 1,340 1,659 2,457 6.2%

Refining Utilization FY18 117% 107% 111% 117% 119% 123% Refining Utilization FY18-20 avg 117% 105% 110% 117% 120% 125% For every 1pp of utilization FY18 Group EBITDA 560 541 550 560 565 573 0.3% FY19 Group EBITDA 618 594 606 618 625 635 0.3% FY18 EPS (INR) 97.9 93 95 98 99 101 0.4% FY19 EPS (INR) 100.9 94 97 101 103 105 0.5% Residual Income (INR/sh) 1,340 1,218 1,274 1,340 1,373 1,425 0.7%

Retail Rev Growth FY18-20 cagr 28% 15% 24% 28% 35% 40% For every 5% change FY18 EPS (INR) 97.9 97 98 98 98 99 0.4% FY19 EPS (INR) 100.9 99 100 101 102 103 0.7% Residual Income (INR/sh) 1,340 1,287 1,322 1,340 1,372 1,400 1.9% Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

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Financial Summary Fig 44 Reliance Industries Summary Financials RELIANCE INDUSTRIES (RIL IN) Underperform 12-Month Price Target Rs.1,350

P&L - Consolidated (INR, bn) FY16 FY17 FY18 FY19 FY20 Generic Assumptions FY16 FY17 FY18 FY19 FY20 USD/INR 64.5 67.0 65.0 65.0 65.0 Net Revenues 2,934 3,302 3,608 3,636 4,043 Brent ($/bbl) 47.7 49.0 52.0 48.9 53.8

Gross Profit 853 931 1,086 1,171 1,271 Refining & Marketing Refinery Utilization 116% 117% 117% 117% 117% EBITDA 417 462 560 618 691 Crude Throughput (mn tons) 69.5 70.1 70.0 70.2 70.2 ...Y-o-Y growth 9% 11% 21% 10% 12% Singapore GRM (US$/bbl) 7.5 5.8 6.1 6.5 6.8 Reliance GRM (US$/bbl) 10.8 11.0 11.3 11.7 12.8 Refining & Marketing 235 251 253 253 285 Delta to Singapore GRM (US$/bbl) 3.3 5.2 5.2 5.2 6.0 Petrochemicals 102 130 178 205 210 Retail Stations Operational (#) 950 1,221 1,521 1,821 2,121 Telecom (JIO) - - -37 -29 -29 Upstream Oil & Gas 36 -16 -16 -18 -18 Petchems Organized Retail 5 8 12 16 20 Production (million tons) 24.7 24.9 29.6 31.1 31.1 Others segments 11 5 4 4 4 Gross Spread (US$/mt) 515 525 524 524 540 Unallocated / other -88 -32 -36 -38 -42 EBIT (US$/mt) 64 78 92 102 104 EBIT 301 345 358 394 431 Telecom (JIO) Other Income 121 94 76 75 86 No. of Subscribers (mn) 0 109 120 136 153 Interest Expense -37 -38 -55 -73 -83 Market share of total connections 0% 10% 10% 11% 11% Income Taxes -89 -102 -91 -99 -109 Market share of data users 0% 27% 26% 26% 26% ...Tax Rate 23% 25% 25% 25% 25% Average revenue per user (INR/month) 151 166 182 Net Income (Reported) 297 299 289 298 327 Net Income (Adjusted) 252 299 278 298 327 Upstream Oil and Gas Total O&G Production (mmboe) 54.9 42.9 37.1 36.5 36.3 Shares outstanding (million) 2,948 2,951 2,951 2,951 2,951 Realized Oil Price (US$/bbl) 47.8 48.7 51.6 48.4 53.3 Reported EPS (INR/sh) 100.9 101.3 97.9 100.9 110.7 Realized Gas Price (US$/mmbtu) 3.7 3.4 3.6 3.7 4.0 Clean EPS (INR/sh) 85.4 101.3 94.2 100.9 110.7 Organized Retail DPS declared (INR/sh) 10.5 11.0 12.0 13.0 14.0 # of stores (period end) 3,245 3,616 3,724 3,874 4,024 Dividend Payout 10% 11% 12% 13% 13% Average revenue per store (mn) 73 96 129 155 179

Cash Flows (INR, billion) FY16 FY17 FY18 FY19 FY20 Key Multiples & Ratios FY16 FY17 FY18 FY19 FY20 EBITDA 417 462 560 618 691 Gross Margin 29% 28% 30% 32% 31% Change in Working Capital 78 155 -4 -66 -56 EBITDA Margin 14% 14% 16% 17% 17% Tax Paid -86 -101 -91 -99 -109 Net Income Margin 10% 9% 8% 8% 8% Other -28 -20 0 0 0 Operating Cashflow 381 496 465 454 527 ROACE 12% 10% 9% 9% 9% Acquisitions 65 92 0 0 0 ROA 5% 5% 4% 4% 4% Capex -469 -781 -476 -460 -445 ROE 13% 11% 10% 9% 10% Asset Sales & Divestments 3 15 0 0 0 Other 39 11 0 0 0 EV/EBITDA 10.4x 11.6x 10.9x 10.0x 9.0x Investing Cashflow -362 -663 -476 -460 -445 P/E 10.4x 13.3x 16.6x 16.1x 14.6x Dividends Paid -73 0 -32 -35 -38 P/CEPS 8.4x 9.6x 9.8x 9.1x 8.1x Debt Movements 133 207 0 250 0 P/B 1.3x 1.5x 1.5x 1.4x 1.3x Other -93 -121 145 -73 -83 Financial Cashflow -32 86 112 141 -122 Net Debt/Equity 55% 53% 42% 42% 40% Net Debt/Net Debt & Equity 35% 35% 30% 30% 29% Net Change in Cash -13 -81 101 134 -40 FCF yield -2% -5% 0% 0% 1% FCF: CFO - Capex -88 -286 -11 -7 82 Dividend yield 1% 1% 1% 1% 1%

Balance Sheet (INR billion) FY16 FY17 FY18 FY19 FY20 RIL SOTP Valuation summary Cash & Equivalents 110 30 131 265 225 1600 Rs/sh Inventory 465 535 522 508 572 Account Receivables 45 82 69 70 77 1200 Property, Plant & Equipment 3,282 4,178 4,291 4,377 4,411 800 Other 2,088 2,244 2,244 2,244 2,244 Total Assets 5,990 7,068 7,258 7,464 7,531 400 ST & LT Debt 1,652 1,837 1,837 2,087 2,087 0 Accounts Payable 603 766 737 657 673 Other 1,386 1,799 1,649 1,499 1,349 Total Liabilities 3,641 4,402 4,223 4,243 4,109 Shareholders Equity 2,349 2,666 3,035 3,221 3,422

Note: March financial year end. FY18 refers to period between April-2017 and March-2018. Source: Company data, Macquarie Research, July 2017. Estimates from FY18.

25 July 2017 35 Macquarie Research Reliance Industries Macquarie Quant View

The quant model currently holds a neutral view on Reliance Industries. The Attractive Displays where the strongest style exposure is Price Momentum, indicating this stock has had company’s ranked based on strong medium to long term returns which often persist into the future. The s l the fundamental consensus

a weakest style exposure is Profitability, indicating this stock is not efficiently t

n Price Target and converting investments to earnings; proxied by ratios like ROE or ROA. e Macquarie’s Quantitative

m

a Alpha model. 198/599 d

n

u Two rankings: Local market Global rank in F (India) and Global sector Energy (Energy) % of BUY recommendations 59% (22/37) Quant Local market rank Global sector rank Number of Price Target downgrades 0 Number of Price Target upgrades 2

Macquarie Alpha Model ranking Factors driving the Alpha Model A list of comparable companies and their Macquarie Alpha model score For the comparable firms this chart shows the key underlying styles and their (higher is better). contribution to the current overall Alpha score.

Hindustan Petroleum 2.4 Hindustan Petroleum

Indian Oil 2.2 Indian Oil

SK Innovation 1.8 SK Innovation

Bharat Petroleum 1.7 Bharat Petroleum

S-Oil 1.4 S-Oil

Thai Oil 1.1 Thai Oil

Reliance Industries 0.0 Reliance Industries

-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Valuations Growth Profitability Earnings Price Quality Momentum Momentum

Macquarie Earnings Sentiment Indicator Drivers of Stock Return The Macquarie Sentiment Indicator is an enhanced earnings revisions Breakdown of 1 year total return (local currency) into returns from dividends, changes signal that favours analysts who have more timely and higher conviction in forward earnings estimates and the resulting change in earnings multiple. revisions. Current score shown below.

Hindustan Petroleum Hindustan Petroleum 0.8 Indian Oil Indian Oil 0.9 SK Innovation SK Innovation 0.6 Bharat Petroleum Bharat Petroleum 0.0 S-Oil S-Oil -0.1

Thai Oil 0.9 Thai Oil

Reliance Industries 0.2 Reliance Industries

-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 -90% -40% 10% 60% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return

What drove this Company in the last 5 years How it looks on the Alpha model Which factor score has had the greatest correlation with the company’s A more granular view of the underlying style scores that drive the alpha (higher is returns over the last 5 years. better) and the percentile rank relative to the sector and market. ⇐ Negatives Positives ⇒ Normalized Percentile relative Percentile relative EV/EBITDA FY1 53% Score to sector(/599) to market(/432) Alpha Model Score 0.02 Dividend Yield FY1 52% Valuation -0.39 EV/EBITDA (NTM) 50% Growth -0.07 Price to Earnings FY1 49% Profitability -0.52 Earnings Momentum 0.18 Relative Turnover -23% Price Momentum 0.22 Momentum 3 Month -24% Quality -0.44 Capital & Funding -0.32 Momentum 12 Month -27% Liquidity 1.10 Turnover (USD) 20 Day -28% Risk -0.14 Technicals & Trading -0.95 -60% -40% -20% 0% 20% 40% 60% 0 50 100 0 50 100 0 0 1 1

Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group ([email protected])

25 July 2017 36 Macquarie Research Reliance Industries

Reliance Industries (RIL IN) Quarterly Results 4Q/17A 1Q/18E 2Q/18E 3Q/18E Profit & Loss 2017A 2018E 2019E 2020E

Revenue m 928,890 905,370 874,296 920,968 Revenue m 3,301,800 3,608,226 3,635,662 4,043,392 Gross Profit m 251,920 253,410 260,048 279,744 Gross Profit m 930,820 1,085,632 1,170,612 1,271,029 Cost of Goods Sold m 676,970 651,960 614,248 641,224 Cost of Goods Sold m 2,370,980 2,522,594 2,465,050 2,772,363 EBITDA m 122,430 125,540 138,179 146,083 EBITDA m 461,940 559,793 618,481 691,291 Depreciation m 33,540 19,500 60,550 60,550 Depreciation m 116,460 201,470 224,917 260,087 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 88,890 106,040 77,628 85,532 EBIT m 345,480 358,323 393,565 431,204 Net Interest Income m -5,410 -11,190 -13,776 -13,776 Net Interest Income m -38,490 -55,103 -73,470 -83,470 Associates m 0 0 0 0 Associates m 0 0 0 0 Exceptionals m 0 10,870 0 0 Exceptionals m 0 10,870 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 19,310 10,510 18,927 18,927 Other Pre-Tax Income m 93,350 64,979 75,529 86,279 Pre-Tax Profit m 102,790 116,230 82,780 90,684 Pre-Tax Profit m 400,340 379,069 395,624 434,013 Tax Expense m -21,930 -25,440 -20,695 -22,671 Tax Expense m -102,010 -91,150 -98,906 -108,503 Net Profit m 80,860 90,790 62,085 68,013 Net Profit m 298,330 287,920 296,718 325,510 Minority Interests m -100 290 198 217 Minority Interests m 680 920 948 1,040

Reported Earnings m 80,760 91,080 62,283 68,230 Reported Earnings m 299,010 288,839 297,666 326,549 Adjusted Earnings m 80,760 80,210 62,283 68,230 Adjusted Earnings m 299,010 277,969 297,666 326,549

EPS (rep) 27.37 30.86 21.11 23.12 EPS (rep) 101.33 97.88 100.87 110.66 EPS (adj) 27.37 27.18 21.11 23.12 EPS (adj) 101.33 94.19 100.87 110.66 EPS Growth yoy (adj) % -16.4 12.7 -13.6 -9.1 EPS Growth (adj) % 18.6 -7.0 7.1 9.7 PE (rep) x 15.9 16.5 16.0 14.6 PE (adj) x 15.9 17.1 16.0 14.6

EBITDA Margin % 13.2 13.9 15.8 15.9 Total DPS 11.00 12.00 13.00 14.00 EBIT Margin % 9.6 11.7 8.9 9.3 Total Div Yield % 0.7 0.7 0.8 0.9 Earnings Split % 27.0 28.9 22.4 24.5 Basic Shares Outstanding m 2,951 2,951 2,951 2,951 Revenue Growth % 45.3 26.7 7.1 9.4 Diluted Shares Outstanding m 2,951 2,951 2,951 2,951 EBIT Growth % 34.9 24.8 -7.6 -2.3

Profit and Loss Ratios 2017A 2018E 2019E 2020E Cashflow Analysis 2017A 2018E 2019E 2020E

Revenue Growth % 12.5 9.3 0.8 11.2 EBITDA m 461,940 559,793 618,481 691,291 EBITDA Growth % 10.7 21.2 10.5 11.8 Tax Paid m -102,010 -91,150 -98,906 -108,503 EBIT Growth % 14.6 3.7 9.8 9.6 Chgs in Working Cap m 155,810 -3,767 -66,010 -56,246 Gross Profit Margin % 28.2 30.1 32.2 31.4 Net Interest Paid m 0 0 0 0 EBITDA Margin % 14.0 15.5 17.0 17.1 Other m -20,240 0 0 0 EBIT Margin % 10.5 9.9 10.8 10.7 Operating Cashflow m 495,500 464,876 453,565 526,543 Net Profit Margin % 9.1 7.7 8.2 8.1 Acquisitions m 92,300 0 0 0 Payout Ratio % 10.9 12.7 12.9 12.7 Capex m -781,090 -476,154 -460,315 -444,673 EV/EBITDA x 14.2 11.7 10.6 9.5 Asset Sales m 14,820 0 0 0 EV/EBIT x 19.0 18.3 16.7 15.2 Other m 11,050 -140 -140 -140 Investing Cashflow m -662,920 -476,294 -460,455 -444,813 Balance Sheet Ratios Dividend (Ordinary) m -0 -32,461 -35,412 -38,363 ROE % 11.9 9.8 9.5 9.8 Equity Raised m 0 0 0 0 ROA % 5.3 5.0 5.3 5.8 Debt Movements m 86,170 144,897 176,530 -83,470 ROIC % 6.6 6.1 6.2 6.4 Other m 0 0 0 0 Net Debt/Equity % 67.8 56.2 56.5 54.4 Financing Cashflow m 86,170 112,436 141,118 -121,833 Interest Cover x 9.0 6.5 5.4 5.2 Price/Book x 1.8 1.6 1.5 1.4 Net Chg in Cash/Debt m -81,250 101,019 134,228 -40,104 Book Value per Share 903.5 1,028.5 1,091.4 1,159.5 Free Cashflow m -285,590 -11,278 -6,750 81,870

Balance Sheet 2017A 2018E 2019E 2020E

Cash m 30,230 131,249 265,477 225,373 Receivables m 81,770 69,076 69,601 77,407 Inventories m 534,600 521,874 507,975 572,130 Investments m 527,510 527,510 527,510 527,510 Fixed Assets m 4,177,510 4,291,324 4,376,722 4,411,308 Intangibles m 48,920 48,920 48,920 48,920 Other Assets m 1,667,480 1,667,620 1,667,760 1,667,900 Total Assets m 7,068,020 7,257,573 7,463,965 7,530,548 Payables m 765,950 736,763 657,379 673,095 Short Term Debt m 315,280 315,280 315,280 315,280 Long Term Debt m 1,521,480 1,521,480 1,771,480 1,771,480 Provisions m 0 0 0 0 Other Liabilities m 1,799,050 1,649,050 1,499,050 1,349,050 Total Liabilities m 4,401,760 4,222,573 4,243,189 4,108,905 Shareholders' Funds m 2,666,260 3,035,000 3,220,776 3,421,643 Minority Interests m 0 0 0 0 Other m 0 0 0 0 Total S/H Equity m 2,666,260 3,035,000 3,220,776 3,421,643 Total Liab & S/H Funds m 7,068,020 7,257,573 7,463,965 7,530,548

All figures in INR unless noted. Source: Company data, Macquarie Research, July 2017

25 July 2017 37 Macquarie Research Reliance Industries Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand This is calculated from the volatility of historical All "Adjusted" data items have had the following Outperform – return >3% in excess of benchmark return price movements. adjustments made: Neutral – return within 3% of benchmark return Added back: goodwill amortisation, provision for Underperform – return >3% below benchmark return Very high–highest risk – Stock should be catastrophe reserves, IFRS derivatives & hedging, expected to move up or down 60–100% in a year IFRS impairments & IFRS interest expense Benchmark return is determined by long term nominal – investors should be aware this stock is highly Excluded: non recurring items, asset revals, property GDP growth plus 12 month forward market dividend speculative. revals, appraisal value uplift, preference dividends & yield minority interests Macquarie – Asia/Europe High – stock should be expected to move up or Outperform – expected return >+10% down at least 40–60% in a year – investors should EPS = adjusted net profit / efpowa* Neutral – expected return from -10% to +10% be aware this stock could be speculative. ROA = adjusted ebit / average total assets Underperform – expected return <-10% ROA Banks/Insurance = adjusted net profit /average Medium – stock should be expected to move up total assets Macquarie – South Africa or down at least 30–40% in a year. ROE = adjusted net profit / average shareholders funds Outperform – expected return >+10% Gross cashflow = adjusted net profit + depreciation Neutral – expected return from -10% to +10% Low–medium – stock should be expected to *equivalent fully paid ordinary weighted average Underperform – expected return <-10% move up or down at least 25–30% in a year. number of shares Macquarie - Canada Outperform – return >5% in excess of benchmark return Low – stock should be expected to move up or All Reported numbers for Australian/NZ listed stocks Neutral – return within 5% of benchmark return down at least 15–25% in a year. are modelled under IFRS (International Financial Underperform – return >5% below benchmark return * Applicable to Asia/Australian/NZ/Canada stocks Reporting Standards). only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell Recommendations – 12 months 3000 index return Note: Quant recommendations may differ from Neutral (Hold) – return within 5% of Russell 3000 index Fundamental Analyst recommendations return Underperform (Sell)– return >5% below Russell 3000 index return

Recommendation proportions – For quarter ending 30 June 2017 AU/NZ Asia RSA USA CA EUR Outperform 52.01% 55.36% 42.05% 46.38% 66.67% 43.60% (for global coverage by Macquarie, 2.98% of stocks followed are investment banking clients) Neutral 37.73% 29.86% 42.05% 47.88% 27.91% 40.14% (for global coverage by Macquarie, 2.33% of stocks followed are investment banking clients) Underperform 10.26% 14.78% 15.91% 5.74% 5.43% 16.26% (for global coverage by Macquarie, 1.15% of stocks followed are investment banking clients)

Company-specific disclosures:

Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Date Stock Code (BBG code) Recommendation Target Price 10-May-2016 RIL IN Outperform Rs1275.00 25-Apr-2016 RIL IN Outperform Rs1280.00 08-Jan-2016 RIL IN Outperform Rs1175.00 19-Oct-2015 RIL IN Outperform Rs1150.00 09-Sep-2015 RIL IN Outperform Rs1110.00 20-Apr-2015 RIL IN Outperform Rs1140.00 15-Apr-2015 RIL IN Outperform Rs1060.00 19-Jan-2015 RIL IN Outperform Rs1075.00

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25 July 2017 39

Asia Research Head of Equity Research Internet, Media and Software Transport & Infrastructure Peter Redhead (Global – Head) (852) 3922 4836 Wendy Huang (Asia, Greater China) (852) 3922 3378 Janet Lewis (Asia) (852) 3922 5417 Jake Lynch (Asia – Head) (852) 3922 3583 David Gibson (Asia, Japan) (813) 3512 7880 Corinne Jian (Taiwan) (8862) 2734 7522 David Gibson (Japan – Head) (813) 3512 7880 Soyun Shin (Korea) (822) 3705 8659 Azita Nazrene (ASEAN) (603) 2059 8980 Conrad Werner (ASEAN – Head) (65) 6601 0182 Abhishek Bhandari (India) (9122) 6720 4088 Marcus Yang (Greater China) (8862) 2734 7532 Utilities & Renewables Automobiles/Auto Parts Ivy Luo (Greater China) (852) 3922 1507 Patrick Dai (China) (8621) 2412 9082 Janet Lewis (China, Japan) (813) 3512 7856 Oil, Gas and Petrochemicals Alan Hon (Hong Kong) (852) 3922 3589 James Hong (Korea) (822) 3705 8661 Inderjeetsingh Bhatia (India) (9122) 6720 4087 Amit Mishra (India) (9122) 6720 4084 Polina Diyachkina (Asia, Japan) (813) 3512 7886 Prem Jearajasingam (Malaysia) (603) 2059 8989 Aditya Suresh (Asia, China, India) (852) 3922 1265 Karisa Magpayo (Philippines) (632) 857 0899 Financials Yasuhiro Nakada (Japan) (813) 3512 7862 Commodities Scott Russell (Asia) (852) 3922 3567 Anna Park (Korea) (822) 3705 8669 Dexter Hsu (China, Taiwan) (8862) 2734 7530 Isaac Chow (Malaysia) (603) 2059 8982 Ian Roper (65) 6601 0698 Keisuke Moriyama (Japan) (813) 3512 7476 Pharmaceuticals and Healthcare Jim Lennon (44 20) 3037 4271 Chan Hwang (Korea) (822) 3705 8643 Lynn Zhao (8621) 2412 9035 Suresh Ganapathy (India) (9122) 6720 4078 Wei Li (China, Hong Kong) (852) 3922 5494 Matthew Turner (44 20) 3037 4340 Sameer Bhise (India) (9122) 6720 4099 Gilbert Lopez (Philippines) (632) 857 0892 Property Economics Ken Ang (Singapore) (65) 6601 0836 Tuck Yin Soong (Asia, Singapore) (65) 6601 0838 Peter Eadon-Clarke (Global) (813) 3512 7850 Passakorn Linmaneechote (Thailand) (662) 694 7728 David Ng (China, Hong Kong) (852) 3922 1291 Larry Hu (China, Hong Kong) (852) 3922 3778 Conglomerates Wilson Ho (China) (852) 3922 3248 William Montgomery (Japan) (813) 3512 7864 Quantitative / CPG David Ng (China, Hong Kong) (852) 3922 1291 Corinne Jian (Taiwan) (8862) 2734 7522 Gurvinder Brar (Global) (44 20) 3037 4036 Conrad Werner (Singapore) (65) 6601 0182 Abhishek Bhandari (India) (9122) 6720 4088 Woei Chan (Asia) (852) 3922 1421 Gilbert Lopez (Philippines) (632) 857 0892 Aiman Mohamad (Malaysia) (603) 2059 8986 Kervin Sisayan (Philippines) (632) 857 0893 Strategy/Country Consumer and Gaming Patti Tomaitrichitr (Thailand) (662) 694 7727 Viktor Shvets (Asia, Global) (852) 3922 3883 Linda Huang (Asia, China, Hong Kong) (852) 3922 4068 Resources / Metals and Mining Chetan Seth (Asia) (852) 3922 4769 Zibo Chen (China, Hong Kong) (852) 3922 1130 David Ng (China, Hong Kong) (852) 3922 1291 Terence Chang (China, Hong Kong) (852) 3922 3581 Polina Diyachkina (Asia, Japan) (813) 3512 7886 Peter Eadon-Clarke (Japan) (813) 3512 7850 Sunny Chow (China, Hong Kong) (852) 3922 3768 Coria Chow (China) (852) 3922 1181 Chan Hwang (Korea) (822) 3705 8643 Satsuki Kawasaki (Japan) (813) 3512 7870 Anna Park (Korea) (822) 3705 8669 Jeffrey Ohlweiler (Taiwan) (8862) 2734 7512 Kwang Cho (Korea) (822) 3705 4953 Sumangal Nevatia (India) (9122) 6720 4093 Inderjeetsingh Bhatia (India) (9122) 6720 4087 KJ Lee (Korea) (822) 3705 9935 Technology Jayden Vantarakis (Indonesia) (6221) 2598 8310 Stella Li (China, Taiwan) (8862) 2734 7514 Anand Pathmakanthan (Malaysia) (603) 2059 8833 Amit Sinha (India) (9122) 6720 4085 Damian Thong (Asia, Japan) (813) 3512 7877 Gilbert Lopez (Philippines) (632) 857 0892 Karisa Magpayo (Philippines) (632) 857 0899 Yasuhiro Nakada (Japan) (813) 3512 7862 Conrad Werner (Singapore) (65) 6601 0182 Chalinee Congmuang (Thailand) (662) 694 7993 Daniel Kim (Korea) (822) 3705 8641 Passakorn Linmaneechote (Thailand) (662) 694 7728 Emerging Leaders Allen Chang (Greater China) (852) 3922 1136 Jeffrey Ohlweiler (Greater China) (8862) 2734 7512 Find our research at Jake Lynch (Asia) (852) 3922 3583 Patrick Liao (Greater China) (8862) 2734 7515 Macquarie: www.macquarieresearch.com/ideas/ Aditya Suresh (Asia) (852) 3922 1265 Louis Cheng (Greater China) (8862) 2734 7526 Thomson: www.thomson.com/financial Timothy Lam (China, Hong Kong) (852) 3922 1086 Kaylin Tsai (Greater China) (8862) 2734 7523 Reuters: www.knowledge.reuters.com Kwang Cho (Korea) (822) 3705 4953 Verena Jeng (Greater China) (852) 3922 3766 Bloomberg: MAC GO Corinne Jian (Taiwan) (8862) 2734 7522 Chris Yu (Greater China) (8621) 2412 9024 Factset: http://www.factset.com/home.aspx Conrad Werner (ASEAN) (65) 6601 0182 Lynn Luo (Greater China) (8862) 2734 7534 CapitalIQ www.capitaliq.com Email [email protected] for access Industrials Telecoms

Janet Lewis (Asia) (813) 3512 7856 Allen Chang (Greater China) (852) 3922 1136 Patrick Dai (China) (8621) 2412 9082 Soyun Shin (Korea) (822) 3705 8659 Kunio Sakaida (Japan) (813) 3512 7873 Prem Jearajasingam (ASEAN) (603) 2059 8989 William Montgomery (Japan) (813) 3512 7864 Kervin Sisayan (Philippines) (632) 857 0893 James Hong (Korea) (822) 3705 8661 Nathania Nurhalim (Indonesia) (6221) 2598 8365 Benson Pan (Taiwan) (8862) 2734 7527 Inderjeetsingh Bhatia (India) (9122) 6720 4087

Asia Sales Regional Heads of Sales Regional Heads of Sales cont’d Sales Trading cont’d Miki Edelman (Global) (1 212) 231 6121 Paul Colaco (San Francisco) (1 415) 762 5003 Suhaida Samsudin (Malaysia) (603) 2059 8888 Jeff Evans (Boston) (1 617) 598 2508 Amelia Mehta (Singapore) (65) 6601 0211 Michael Santos (Philippines) (632) 857 0813 Jeffrey Shiu (China, Hong Kong) (852) 3922 2061 Angus Kent (Thailand) (662) 694 7601 Chris Reale (New York) (1 212) 231 2555 Sandeep Bhatia (India) (9122) 6720 4101 Ben Musgrave (UK/Europe) (44 20) 3037 4882 Marc Rosa (New York) (1 212) 231 2555 Thomas Renz (Geneva) (41 22) 818 7712 Christina Lee (UK/Europe) (44 20) 3037 4873 Justin Morrison (Singapore) (65) 6601 0288 Riaz Hyder (Indonesia) (6221) 2598 8486 Daniel Clarke (Taiwan) (8862) 2734 7580 Nick Cant (Japan) (65) 6601 0210 Sales Trading Brendan Rake (Thailand) (662) 694 7707 John Jay Lee (Korea) (822) 3705 9988 Adam Zaki (Asia) (852) 3922 2002 Mike Keen (UK/Europe) (44 20) 3037 4905 Nik Hadi (Malaysia) (603) 2059 8888 Stanley Dunda (Indonesia) (6221) 515 1555 Gino C Rojas (Philippines) (632) 857 0861

This publication was disseminated on 24 July 2017 at 17:11 UTC.