Equity Research Oil & Gas January 23, 2021

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RESULT UPDATE

KEY DATA Rating HOLD Profit beat, but… Sector relative Neutral Price (INR) 2,050 12 month price target (INR) 2,105 ’ (RIL) Q3FY21 EBITDA of INR215bn (down 4% YoY, Market cap (INR bn/USD bn) 13,487/184.7 up 14% QoQ) came in line with our estimate. PAT of INR131bn (up 13% Free float/Foreign ownership (%) 50.9/24.2 What’s Changed YoY, 37% QoQ) beat estimate, but was entirely driven by investment Target Price ⚊ income and a near-zero tax liability. O2C & retail missed expectations, Rating/Risk Rating ⚊ but RJio beat forecasts. While recovery is underway, it is mixed. QUICK TAKE But, transparency levels are falling across businesses. RIL has stopped Above In line Below reporting a key matrix—GRM—altogether. Similarly, it has ceased Profit   providing division-wise turnover breakdown for retail and RJio’s key Margins   Revenue Growth   driver FTTH lacks granularity. In our view, primary stock triggers— Overall   deleveraging, asset monetisation, digital momentum—have played out. Reiterate our “Deja Vu” ‘HOLD’ with unchanged TP of INR2,105.

FINANCIALS (INR mn) O2C: Broad-based recovery still elusive Year to March FY20A FY21E FY22E FY23E O2C EBITDA slid 29% YoY, but improved 9% QoQ. Polymer and polyester margins Revenue 5967430 5001138 6685939 9037438 were healthy, though intermediate margins plunged given Chinese overcapacities. EBITDA 882170 8,50,148 1285495 1656140 Refining throughput rose 9% QoQ, but fell 8% YoY led by utilisation of 108% on Adjusted profit 3,93,540 3,67,811 6,25,533 8,53,533 Diluted EPS (INR) 62.1 54.4 92.5 134.6 channel restocking. Management refrained from giving GRMs this quarter, which is EPS growth (%) (7.1) (12.4) 70.1 45.5 a major parameter for assessing core business. KG-D6 R-cluster gas production RoAE (%) 9.3 7.2 9.0 10.8 commenced in Dec’20 with volumes at 4.5mmscmd currently and peak target of P/E (x) 33.0 35.9 22.2 15.2 12mmscmd by end-CY21. Satellite cluster/MJ fields will start from Q3CY21/ Q3CY22. EV/EBITDA (x) 17.4 19.1 12.6 6.9 Dividend yield (%) 0.3 0.3 0.5 1.0 Retail EBITDA up 1.5x QoQ; strong spurt in RJio ARPU Reported retail EBITDA rose 1.5x QoQ (up 14% YoY), but after adjusting for INR7.75bn of investment income included in EBITDA it declined 15% YoY and grew PRICE PERFORMANCE 16% QoQ. 96% of stores are now operational verses 85% in Q2, of which half could 2,325 50,000 operate fully. Footfalls steadily recovered with strong traction in fashion & lifestyle 2,030 45,000 amid festive season. JioMart has been extended to 23 cities versus target of 200. 1,735 40,000 Digital services’ EBITDA rose 60% YoY (up 19% QoQ). ARPU rose 17.6% YoY to INR151 1,440 35,000 1,145 30,000 largely due to the tariff hike taken in Dec 2019. RJio’s net subscriber addition has 850 25,000 slowed drastically to 5.2mn (total of 410.8mn). While we do expect some recovery Jan-20 Apr-20 Jul-20 Oct-20 in subscriber addition, we believe it is unlikely to go to 20mn plus historical quarterly RIL IN Equity Sensex run-rate; hence, tariff hike and traction in FTTH will be crucial.

Outlook: Hugely diluted retail & RJIO PAT attributable to RIL Explore: Retail PAT attributable to RIL is diluted by 10% stake sale, resulting in estimated 7% YoY PAT fall (standalone up 4%). Similarly, on 33% stake sale, attributable PAT growth dips to 63% YoY for RJio versus standalone of 144%. While consumer-facing, RJio and retail optically contribute to half of RIL’s EBITDA, it falls to only 29% at attributable consolidated PAT level. We reiterate ‘HOLD/SN’ with TP of INR2105. Financial model Podcast Financials Year to March Q3FY21 Q3FY20 % Change Q2FY21 % Change Net Revenue 11,78,600 15,29,390 (22.9) 11,12,360 6.0 EBITDA 2,15,660 2,23,860 (3.7) 1,89,450 13.8 Adjusted Profit 1,32,220 1,18,170 11.9 95,670 38.2 Video Corporate access Diluted EPS (INR) 20.5 18.6 10.0 14.8 38.2

Jal Irani Pranav Kshatriya Shubham Mittal Shubham Mittal +91 (22) 6620 3087 +91 (22) 4040 7495 +91 (22) 4063 5459 +91 (22) 4063 5459 [email protected] [email protected] [email protected] [email protected]

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Financial Statements

Income Statement (INR mn) Balance Sheet (INR mn) Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Total operating income 59,67,430 50,01,138 66,85,939 90,37,438 Share capital 63,392 64,447 67,616 67,616 Gross profit 19,15,030 15,99,021 21,92,670 28,05,202 Reserves 44,69,920 66,40,296 76,55,959 84,63,758 Employee costs 1,40,750 1,21,603 1,41,093 1,66,117 Shareholders funds 45,33,312 67,04,742 77,23,575 85,31,374 Other expenses 8,92,110 6,27,270 7,66,081 9,82,946 Minority interest 80,160 1,24,021 1,60,389 2,05,371 EBITDA 8,82,170 8,50,148 12,85,495 16,56,140 Borrowings 32,95,250 16,02,823 16,00,663 14,37,935 Depreciation 2,22,030 2,70,393 3,34,850 4,14,992 Trade payables 9,67,990 6,68,168 8,29,494 10,72,826 Less: Interest expense 2,20,270 2,59,724 1,92,533 1,85,422 Other liabs & prov 24,67,290 11,55,317 15,78,831 20,95,689 Add: Other income 1,39,560 2,28,409 1,43,777 1,69,461 Total liabilities 1,16,59,152 1,05,70,222 1,22,08,103 1,36,58,345 Profit before tax 5,79,430 5,48,440 9,01,889 12,25,186 Net block 43,59,200 45,70,033 45,89,907 46,06,019 Prov for tax 1,37,260 1,37,839 2,41,058 3,26,672 Intangible assets 9,67,380 10,27,273 10,20,110 10,19,697 Less: Other adj 0 0 0 0 Capital WIP 10,91,060 2,00,564 1,70,479 1,70,479 Reported profit 4,37,980 3,67,811 6,25,533 8,53,533 Total fixed assets 64,17,640 57,97,870 57,80,497 57,96,195 Less: Excp.item (net) 0 0 0 0 Non current inv 20,38,520 18,58,520 18,58,520 18,58,520 Adjusted profit 3,93,540 3,67,811 6,25,533 8,53,533 Cash/cash equivalent 10,38,350 8,27,798 21,59,488 31,52,585 Diluted shares o/s 6,339 6,445 6,762 6,339 Sundry debtors 1,96,560 1,77,881 2,07,844 2,51,857 Adjusted diluted EPS 62.1 54.4 92.5 134.6 Loans & advances 2,24,010 4,53,865 5,96,186 7,83,971 DPS (INR) 6.5 5.5 11.2 19.9 Other assets 17,44,072 16,34,248 17,85,529 19,95,176 Tax rate (%) 23.7 25.1 26.7 26.7 Total assets 1,16,59,152 1,05,70,222 1,22,08,103 1,36,58,345

Important Ratios (%) Free Cash Flow (INR mn) Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Brent crude ($/bbl) 60.9 42.0 50.0 60.0 Reported profit 4,37,980 3,67,811 6,25,533 8,53,533 Natural gas ($/mmbtu) 3.5 3.0 3.0 3.1 Add: Depreciation 2,22,030 2,70,393 3,34,850 4,14,992 Naphtha margins ($/mt) 525.9 494.0 528.6 606.0 Interest (net of tax) 1,68,091 1,94,448 1,41,072 1,35,983 EBITDA margin (%) 14.8 17.0 19.2 18.3 Others (3,53,808) (53,832) 36,450 47,004 Net profit margin (%) 6.6 7.4 9.4 9.4 Less: Changes in WC (5,06,678) 1,18,303 (2,69,377) (2,76,798) Revenue growth (% YoY) 5.2 (16.2) 33.7 35.2 Operating cash flow 9,80,970 6,60,516 14,07,282 17,28,310 EBITDA growth (% YoY) 5.1 (3.6) 51.2 28.8 Less: Capex 7,65,170 4,52,879 3,47,562 4,30,690 Adj. profit growth (%) (0.6) (6.5) 70.1 36.4 Free cash flow 2,15,800 2,07,637 10,59,720 12,97,620

Assumptions (%) Key Ratios Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E GDP (YoY %) 4.8 (6.0) 7.0 6.0 RoE (%) 9.3 7.2 9.0 10.8 Repo rate (%) 4.4 3.5 3.5 4.0 RoCE (%) 10.6 9.9 12.2 14.4 USD/INR (average) 70.7 75.0 73.0 72.0 Inventory days 64 74 57 51 ARPU (INR) 126.9 146.4 175.6 200.6 Receivable days 15 14 11 9 Chem. Prod. (mmt) 31.6 32.5 35.2 36.3 Payable days 92 88 61 56 No. of stores 11,784 12,962 15,555 18,666 Working cap (% sales) (12.2) 16.9 9.6 4.5 Subscribers (mn) 387.5 423.3 467.3 470.3 Gross debt/equity (x) 0.7 0.2 0.2 0.2 GRM (USD/bbl) 8.9 6.2 9.7 11.1 Net debt/equity (x) 0.5 0.1 (0.1) (0.2) Ref. throughput (mmt) 70.6 63.3 68.7 69.9 Interest coverage (x) 3.0 2.2 4.9 6.7

Valuation Metrics Valuation Drivers Year to March FY20A FY21E FY22E FY23E Year to March FY20A FY21E FY22E FY23E Diluted P/E (x) 33.0 35.9 22.2 15.2 EPS growth (%) (7.1) (12.4) 70.1 45.5 Price/BV (x) 2.9 2.0 1.8 1.5 RoE (%) 9.3 7.2 9.0 12.2 EV/EBITDA (x) 17.4 19.1 12.6 6.9 EBITDA growth (%) 5.1 (3.6) 51.2 28.8 Dividend yield (%) 0.3 0.3 0.5 1.0 Payout ratio (%) nm 0 0 0

Source: Company and Edelweiss estimates

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Reported consolidated EBITDA performance Consol Segmental Edelweiss Q3FY21 Q3FY20 % change YoY Q2FY21 % change QoQ Deviation (%) EBITDA (INR mn) estimate Petrochemical 68,292 72,520 (5.8) 59,640 14.5 69,013 (1.0) Refining 29,268 65,300 (55.2) 30,020 (2.5) 33,934 (13.8) Oil and Gas 385 1,138 NM -1,271 NM -1,876 (120.5) Organised retail 31,020 27,270 13.8 20,090 54.4 26,913 15.3 Digital services 89,420 55,830 60.2 75,040 19.2 79,279 12.8 Others -2,380 -200 NM -1,810 NM -1,629 NM Total EBITDA 2,15,660 2,23,860 (3.7) 1,89,450 13.8 2,05,220 5.1 Source: Edelweiss Research Note: Company disclosed only O2C (integrated refining & petchem) EBITDA during Q3FY21. We assume that 30% of O2C EBIDTA attributable to Refining and 70% to petchem

Retail growth adjusted for investment income declines

Reported retail EBITDA rose 1.5x QoQ (+14% YoY). But, RIL has included INR7.75bn of investment income in the retail business EBITDA; adjusting for same, EBITDA declined 15% YoY and grew 16% QoQ.

Consolidated EBITDA performance after adjusting for investment income reported as part of EBIDTA % % Deviation Consol Segmental EBITDA (INR mn) Q3FY21 Q3FY20 change Q2FY21 change Edelweiss estimate (%) YoY QoQ Petrochemical 68,292 72,520 (5.8) 59,640 14.5 69,013 (1.0) Refining 29,268 65,300 (55.2) 30,020 (2.5) 33,934 (13.8) Oil and Gas 385 1,138 NM -1,271 NM -1,876 (120.5) Organised Retail (reported) 31,020 27,270 13.8 20,090 54.4 26,913 15.3 Less: Retail investment Income reported as part of EBIDTA 7,750 Organised Retail (adjusted) 23,270 27,270 (14.7) 20,090 15.8 26,913 (13.5) Digital services 89,420 55,830 60.2 75,040 19.2 79,279 12.8 Others -2,380 -200 NM -1,810 NM -1,629 NM Adjusted Total EBITDA 2,07,910 2,23,860 (7.1) 1,89,450 9.7 2,05,220 1.3 Source: Edelweiss Research

Hugely diluted retail & RJIO PAT attributable to RIL

As RIL receives a mammoth USD35bn cash infusion from equity sales, two major implications kick-in. First, retail profits attributable to RIL get diluted by the 10% stake sale, resulting in an estimated 7% YoY decline at the net profit level (standalone 4% rise), and similarly estimated growth attributable from RJio drops to 144% YoY versus standalone reported growth of 144% due to the 33% stake sale.

Also, importantly, while consumer-facing businesses RJio and retail optically contribute about half of RIL’s EBITDA, they contribute only 29% to RIL’s overall consolidated PAT. Second, quality of profit suffers as RIL’s investment income of INR7.8bn overshadows core earnings growth following cash infusions.

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Hugely diluted net profits attributable to RIL Q3FY2 Q3FY2 Change YoY Q2FY2 Change Profits attributable to RIL (INR million) 1 0 % 1 Q0Q% RJIO (Standalone) 32,910 13,500 144% 28,440 16% RIL stake (%) 67% 100% 67% RJIO (Profits attributed to RIL) 22,060 13,500 63% 19,063 16% Retail (Reported) 18,300 17,530 4% 9,730 88% RIL stake (%) 85% 95% 91% Retail (Profits attributed to RIL) 15,564 16,680 -7% 8,845 76% O2C & Others 93,386 86,220 8% 67,762 38% Total profits attributable to RIL 131,01 116,40 13% 95,670 37% (Reported) 0 0 Source: Company, Edelweiss Research

Q3FY21 EBITDA growth drivers--O2C/ petchem slumps, surge in RJio

2,23,860 36,032 31,090 2,026 2,15,660 4,228 754 3,750

3Q FY20 R&M Petchem Oil & Gas Retail Digital Others 3QFY21 Services

Source: Edelweiss Research

*Note: Company disclosed only O2C EBITDA. Our assumption of 30% for Refining and 70% for petchem

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Segmental EBITDA forecast breakdown: CAGR of 22% through FY25E

(INR bn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E Segmental EBITDA Petrochemical EBITDA 137 165 259 376 309 236 343 411 458 509 Refining EBITDA 267 286 290 230 240 148 282 354 413 488 Oil and Gas EBITDA 17 4 10 15 7 14 36 88 114 133 Retail EBITDA 9 12 24 60 97 104 155 241 332 420 Telcom/Digital EBITDA 67 151 216 310 442 534 596 658 Consolidated EBITDA 417 462 642 839 882 850 1,285 1,656 1,941 2,236 Consol PAT (ex minority interest) 301 300 361 393 388 324 589 809 992 1,173 Net profit (ex Telco) 301 300 353 364 331 214 431 618 776 931 PAT growth (YoY) 20% 9% -1% -17% 82% 37% 23% 18% PAT growth (CAGR over FY20) -17% 23% 28% 26% 25% EBITDA growth (CAGR over FY20) -4% 22% 26% 24% 22% Source: Edelweiss Research

Segmental PAT forecast breakdown: We expect PAT CAGR of 26% through FY25E

(INR bn) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E Segmental PAT Refining, petchem, gas 277 314 336 352 309 274 446 595 706 818 Telecom/Digital 0 0 7 30 57 110 158 190 216 241 Retail 3 5 13 33 58 62 95 150 209 265 Consolidated PAT 300 299 361 396 394 368 626 854 1,045 1,233 PAT growth (YoY) 21% 10% -1% -7% 70% 36% 22% 18% PAT growth (CAGR over FY20) -7% 26% 29% 28% 26% Source: Edelweiss Research Right on track for zero net debt

We believe RIL will comfortably achieve zero net debt by FY22 following its rights issue and stake monetisation in several businesses, even after accounting for creditor capex and spectrum liabilities. Adding the creditor capex of INR500bn and spectrum liability of INR200bn, we reckon an adjusted net debt figure of about INR2.57tn. Along with free cash flows, we believe RIL will comfortably turn net cash by FY22E.

Zero net debt, even after creditor capex and spectrum liabilities

2,700 2576 1521

2,100

ZERO net debt 1,500 INR220bn of Net Cash by FY22 achieved 531 900

Net bn) (INR Cash Debt/ Net 76 377 300 300 - 230

(300) Net debt (FY20) 33% Jio stake Rights Issue till Fuel retail Retail Free cash flow Net debt/ Cash sale FY22 (FY22)

Source: Edelweiss Research

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Total equity raise and balance commitments

Source: Edelweiss Research

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RJIO: Strong quarter with strong wave in coming quarters

 RJio’s revenue growth was marginally ahead of our estimate (up 5.8% QoQ versus 5.1% expected) due to 4.2% QoQ ARPU improvement to INR151 from INR145.

 It added 5.2mn subscribers during the quarter (estimate 10.7mn) to take the total subscriber base to 410.8mn (7.3mn in Q2FY21). While gross subscriber addition was healthy at 25.1mn, higher churn due to local issues impacted the overall subscriber addition. Management has indicated that these local issues have normalised and hence we expect subscriber addition to revive from Q4FY21.

 ARPU of INR151 surpassed our estimate of INR148. We attribute some portion of the increase to high ARPU FTTH subscriber addition. Management did indicate strong demand for FTTH offering, but it has not shared any KPI on the same.

 Data usage per customer increased 7.5% QoQ to 12.9GB per customer. This KPI may also have an impact of FTTH subscriber contribution.

 EBITDA margin expanded 100bps QoQ to 43.9% (43.1% expectation) as network and other costs remained stable.

 Depreciation increased by 4.8% QoQ, which resulted in 5.7% QoQ PAT growth.

RJio’s results were marginally ahead of our expectations. While we do expect some recovery in subscriber addition in coming quarters, we believe it is unlikely to go to 20mn+ historical quarterly run rate. Hence, tariff hike traction in FTTH and other digital initiative will be crucial. We do expect industry to take tariff hike in next one-two quarters. Incrementally, the company is focusing on indigenously developing 5G technology, which we believe is a high risk strategy. Overall, we maintain our hypothesis that market is optimistic on RJio’s digital offering and there could be some disappointment. RJio Q3FY21 analyst meet: Key takeaways

 RJio achieved milestone of USD10bn annualised revenue run-rate.

 FTTH business scaling up rapidly with services being offered extensively across the country.

 The company continues to invest in building superior customer experience.

 RJio has market leadership in 18 of 22 circles and overall AGR share of ~45% as of Sep-20.

FTTH/STB (Set top box)

 RJio has become the largest FTTH provider in the country; management sees great potential and expects this business will be scaled by orders of magnitude.

 The set-top box has 200+ applications across categories.

 Jio STB virtual assistant is available in 6 Languages: English, Hindi, Gujarati, Marathi Tamil, Telugu; 2 more upcoming languages(Kannada & Punjabi).

 RJio has a robust pipeline of content and solutions, such as smart speakers, home IoT solutions etc.

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 The company is looking at ad monetization via boot up ads, preroll & mid roll video ads, and sponsor cards; targeted ads based on user analytics.

5G

 The company has indigenously developed 5G radio, completing the entire end- to-end RJio 5G technology.

 The company has achieved throughputs > 1 Gbps at cell level.

 gNodeB Small Cell is being manufactured for a largescale field trial with test customers.

 In-house massive MIMO and indoor 5G small cell under advanced stages of development.

 While RJio has ambitious 5G technology development plans, we are unsure on the timeline and efficiency of the technology.

Others

 SMB will be a key area of growth and the company is offering all-in-one packs which include connectivity (high speed internet), communication (fixed mobile convergence), conferencing (JioMeet, Microsoft Teams), productivity (Microsoft 365, JioAttendance) and other tools.

 The company has lined up various IoT offerings for enterprises such as connected vehicles, smart metering, smart cities, connected assets, smart hospitality, etc.

 It has a whole suite of home IOT solutions which will address all consumer needs.

RJio continues to be operator of choice for 410.8mn subscribers

450 411 370 388 398 406 331 355 370 307 280 252 290 215 187

(mm) 160 210 139 109 123 130

50

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21 Q3FY21

Source: Edelweiss Research

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RJio quarterly financial snapshot

INR mn Q3FY21 Q2FY21 % QoQ Q3FY20 % YoY Revenue from Operations 1,84,920 1,74,810 5.8 1,39,680 32.4 Network Operating expense 56,530 54,260 4.2 44,230 27.8 Access charges (net) 15,490 15,100 2.6 14,420 7.4 Employee benefits expenses 3,430 3,310 3.6 3,140 9.2 Selling and distribution expenses 2,980 2,940 1.4 3,560 (16.3) Other expenses 4,960 4,700 5.5 3,670 35.1 Operating expenses other than spectrum 83,390 80,310 3.8 69,020 20.8 License fee / Spectrum charges 20,390 19,460 4.8 14,830 37.5 EBITDA 81,140 75,040 8.1 55,830 45.3 EBITDA margin (%) 44 43 2.2 40 9.8 Depreciation 29,100 28,710 1.4 17,960 62.0 EBIT 52,040 46,330 12.3 37,870 37.4 Less: Interest cost 8,500 10,220 (16.8) 19,530 (56.5) Add: Other income 520 1,970 (73.6) 180 188.9 Profit / (loss) before tax 44,060 38,080 15.7 16,750 163.0 Current tax - - (2,520) (100.0) Deferred tax 11,150 9,640 15.7 5,770 93.2 Less: Provision for tax 11,150 9,640 15.7 3,250 243.1 Net Profit / (Loss) 32,910 28,440 15.7 13,500 143.8 Source: Edelweiss Research

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Rio--Statement of profit & loss

FY19 FY20 FY21 FY22 FY23 FY24 FY25 Subscribers (mn) 306.7 387.5 423.3 467.3 470.3 473.3 476.3 ARPU (INR) 131 127 146 176 201 218 234 Total revenues (INR mn) 3,88,381 5,28,360 7,12,043 9,38,040 11,28,653 12,32,407 13,33,521 YoY growth (%) 92.7 36.0 34.8 31.7 20.3 9.2 8.2

Operating Costs Network opex 1,13,379 1,69,300 2,23,671 2,82,793 3,34,718 3,63,353 3,87,618 % of revenue 29.2 32.0 31.4 30.1 29.7 29.5 29.1

License and WPC charges 41,592 57,200 78,986 1,05,152 1,26,527 1,38,159 1,49,495 % of revenue 10.7 10.8 11.1 11.2 11.2 11.2 11.2

Termination Cost 42,070 43,150 51,616 35,646 42,889 46,831 50,674 % of revenue 10.8 8.2 7.2 3.8 3.8 3.8 3.8

Employee costs 16,577 14,630 13,655 18,761 25,959 28,345 30,671 % of revenue 4.3 2.8 1.9 2.0 2.3 2.3 2.3

Subscribers acquisition and Servicing Expenses 11,500 12,770 14,272 28,141 33,860 30,810 33,338 % of revenue 3.0 2.4 2.0 3.0 3.0 2.5 2.5

Admin & Other exp 12,303 15,640 19,969 25,520 30,705 28,790 24,083 % of revenue 3.2 3.0 2.8 2.7 2.7 2.3 1.8 Total Costs 2,37,420 3,12,690 4,02,170 4,96,012 5,94,658 6,36,289 6,75,878

EBITDA (INR mn) 1,50,960 2,15,670 3,09,874 4,42,028 5,33,995 5,96,118 6,57,643 EBITDA Margin 38.9 40.8 43.5 47.1 47.3 48.4 49.3 Depreciation (INR mn) 63,984 73,960 1,15,697 1,59,172 2,08,153 2,37,134 2,67,257 Spectrum 6,993 8,083 12,644 17,395 22,748 25,916 29,208 Depreciation on other assets 12,930 14,946 23,380 32,166 42,064 47,920 54,008 Depreciation on incremental capex 44,357 51,273 80,208 1,10,347 1,44,303 1,64,394 1,85,277 EBIT (INR mn) 86,976 1,41,710 1,94,176 2,82,856 3,25,842 3,58,984 3,90,386

Interest (INR mn) 41,486 66,170 52,021 47,271 42,284 36,346 30,531 Add : Other income PBT (INR mn) 45,555 76,410 1,47,455 2,35,785 2,83,759 3,22,838 3,60,055

Tax 15,916 19,330 37,285 77,809 93,640 1,06,537 1,18,818

PAT (INR mn) 29,639 57,080 1,10,170 1,57,976 1,90,118 2,16,302 2,41,237

Capex (INR mn) (5,38,339) 2,34,280 2,20,873 2,50,155 3,10,764.29 3,76,808.99 3,85,426.05 Cumulative Capex 17,57,000 19,91,280 22,12,153 24,62,308 27,73,073 31,49,882 35,35,308 Source: Edelweiss Research

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RJio--NPV analysis DCF ANALYSIS FY18 FY19 FY20 FY21 FY22 FY23 FY24 EBIT*(1-t) 23,626 65,084 1,06,042 1,45,302 2,11,661 2,43,828 2,68,628 Depreciation (INR mn) 35,765 63,984 73,960 1,15,697 1,59,172 2,08,153 2,37,134 Gross Cash Flow (INR mn) 59,391 1,29,068 1,80,002 2,60,999 3,70,833 4,51,980 5,05,762 Working Capital (INR mn) (4,61,890) (3,83,460) 46,740 49,666 50,595 51,378 51,805 Investment in WC (INR mn) (48,127) 78,430 4,30,200 2,926 929 783 426 Capex (INR mn) 5,01,957 (5,38,339) 2,34,280 2,20,873 2,50,155 3,10,764 3,76,809 FCFF (INR mn) (3,94,439) 5,88,977 (4,84,478) 37,200 1,19,749 1,40,433 1,28,526 FCFF growth (%) PV FCF (3,94,439) 5,88,977 (4,84,478) 33,363 96,321 1,01,308 83,156 NPV (INR mn) 45,14,387 FY20 Debt (INR mn) 5,22,590 NPV of equity (INR mn) 39,91,797 Cumulative Investments 23,73,570 EV/IC 1.9 Source: Edelweiss Research

RJio--NPV analysis (contd..) DCF ANALYSIS FY25 FY26 FY27 FY28 FY29 FY30 Terminal Value EBIT*(1-t) 2,92,126 3,32,399 3,38,843 3,45,140 3,56,149 3,76,335 Depreciation (INR mn) 2,67,257 2,73,084 3,22,821 3,73,855 4,23,060 4,64,801 Gross Cash Flow (INR mn) 5,59,383 6,05,483 6,61,664 7,18,995 7,79,209 8,41,136 Working Capital (INR mn) 52,220 52,657 53,075 53,493 53,940 54,415 Investment in WC (INR mn) 416 437 418 418 446 476 Capex (INR mn) 3,85,426 2,51,025 2,48,926 2,46,502 2,62,783 2,61,464 FCFF (INR mn) 1,73,541 3,54,021 4,12,320 4,72,074 5,15,979 5,79,196 80,31,523 FCFF growth (%) PV FCF 1,00,700 1,84,238 1,92,447 1,97,611 1,93,713 1,95,019 27,04,265 NPV (INR mn) 45,14,387 FY20 Debt (INR mn) 5,22,590 NPV of equity (INR mn) 39,91,797 Cumulative Investments 23,73,570 EV/IC 1.9 Source: Edelweiss Research

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Global valuation comparison with telecoms companies

Div yield EPS CAGR Mcap Diluted EPS (LC) EV/EBITDA( x) ROCE (%) Company (%) (%) (USD mn) FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY21E FY20-22E India Telecom Ltd 5,002 (10.7) (8.9) (5.7) 7.3 7.9 6.1 -4.6 5.2 1.4 0.0 -24.5 Ltd 43,137 (4.5) (14.1) 11.6 10.5 10.4 8.7 -5.9 -4.2 3.9 0.3 NA Reliance Jio NA 1.0 2.4 3.9 22.6 15.7 11.0 9.1 9.8 13.8 NA 44.0 Reliance Consol 1,73,735 62.1 54.4 92.5 17.4 19.0 12.6 10.6 9.9 12.2 0.3 22.1 India Telecom-Mean (4.7) (6.8) 3.3 13.4 11.4 8.6 -0.5 3.6 6.3 0.2 9.8 US Telecom AT&T INC 2,05,443 3.1 3.1 3.3 7.2 6.8 6.7 6.2 6.2 6.4 7.2 2.7 Verizon Communications Inc 2,36,989 4.8 5.0 5.2 7.0 7.4 7.1 9.3 9.3 8.8 4.3 3.4 US Telecom-Mean 4.0 4.1 4.2 7.1 7.1 6.9 7.7 7.7 7.6 5.8 3.1 Europe Telecom Telenor Asa 23,995 9.4 10.5 11.0 7.0 6.2 6.1 8.7 8.7 9.3 6.2 9.2 Telefonica Sa 24,479 0.4 0.4 0.5 6.1 5.5 5.3 3.2 3.2 4.3 9.9 8.1 Deutsche Telekom Ag-Reg 86,890 1.1 1.1 1.4 5.4 7.1 6.7 4.0 4.0 3.9 4.0 9.8 Europe Telecom-Mean 3.6 4.0 4.3 6.1 6.2 6.1 5.3 5.3 5.8 6.7 9.0 APAC Telecom China Telecom Corp Ltd-H 23,385 0.3 0.3 0.3 2.8 1.8 1.8 4.4 4.4 4.5 6.1 11.4 China Tower Corp Ltd-H 27,018 0.0 0.0 0.1 6.7 4.8 4.5 2.1 2.1 2.7 2.0 23.4 Nippon Telegraph & Telephone 1,01,574 232.0 250.7 281.9 4.8 5.2 5.2 6.8 7.7 8.4 3.7 9.5 APAC Telecom-Mean 77.4 83.7 94.1 4.8 3.9 3.8 4.4 4.7 5.2 3.9 14.8 Middle-East Telecom Saudi Telecom Co 59,393 5.5 5.7 6.1 10.0 10.1 9.6 14.6 14.4 14.7 3.6 NA Middle East -Mean 5.5 5.7 6.1 10.0 10.1 9.6 14.6 14.4 14.7 3.6 NA Source: Edelweiss Research

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6.3

6.5

7.6

6.7

3.8

7.0

2.4

FY22E

7.4

7.9

8.8

7.0

4.4

8.7

3.2

FY21E

EV/ Sales (x) EV/ Sales

7.4

7.9

8.8

7.0

4.4

8.7

FY20

2.6

18.4

FY20

6.0

6.6

2.9

23.9

35.6

19.9

P/B (x)

2.4

42.5

54.5

80.7

38.5

36.3

13.1

FY20

bn) bn)

OCF (USD OCF (USD

29.8

FY20

1.9

2.9

FCF

31.0

73.4

21.7

21.2

(USD bn) bn) (USD

36.6

27.4

43.8

31.7

55.9

24.3

22.2

FY22E

44.1

32.9

57.5

34.2

68.6

27.1

37.7

FY21E

P/E (x)

56.5

FY20

39.6

72.9

42.0

96.8

31.1

33.0

21.7

(%) (%)

20.0

36.1

12.2

24.9

15.5

25.7

EPS EPS

CAGR#

51.5

9.0

17.6

31.6

23.2

21.5

163.5

FY22E

41.4

7.2

17.3

32.5

23.2

23.2

110.9

FY21E

ROE (%) (%) ROE

32.9

9.3

FY20

17.3

30.0

70.7

23.2

23.2

21.5

14.9

31.0

23.1

24.3

14.1

12.6

FY22E

25.7

18.2

39.6

24.2

30.4

16.3

19.1

FY21E

EV/EBITDA( x) x) EV/EBITDA(

25.0

FY20

16.5

46.3

23.3

23.6

15.1

17.4

Mcap

2,56,170

7,77,214

1,73,735

(USD mn) (USD

12,76,994

23,02,600

16,59,286

Exihibit 15: Valuation Snapshot Exihibit15:Valuation

FAANG- mean

Alphabet

Netflix

Apple

Amazon

Facebook

FAANG

RIL Consolidated RIL Company

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Retail: Normalised EBITDA margin rise 150bps QoQ led by fashion RRL’s revenue declined 10% QoQ to INR330bn in Q3FY21 (INR 366bn in Q2FY21), attributed largely to: 1) the transfer out of the fuel retailing business to the RIL-BP JV; and 2) decision to convert Reliance Market stores to fulfilment centres to enable city expansion of New Commerce.

That said, normalized EBITDA margin improved 150bps sequentially to 7% in Q3FY21 with grocery business, consumer electronics and fashion & lifestyle businesses posting robust performance during the quarter.

Strong festive season coupled with improved performance in Tier 2 & 3 cities led to double digit growth sequentially in Consumer Electronics stores (excluding JIO devices).

Similarly, apparel & footwear business posted 1.5x growth QoQ on a strong festive season, offset by covid-19 related restrictions during the quarter.

96% of stores became operational during the quarter (vs. 85% in Q2FY21), of which 52% were fully operational (vs. 43% in Q2FY21). Footfalls (75% of pre-covid levels); however, remained at par with Q2FY21.

During the quarter, the company added 327 new stores, taking its total count to 12,201 spread over 31.2mn sq ft (29.7mn sq ft in Q2FY21).

Digital commerce continues to remain strong (up 12x YoY) as JioMart and Ajio scale new highs. New commerce has been extended to 1mn merchant partners.

Store count crosses 12,000 mark

3QFY21 Total Addition Region Store Count Area (Sqft mn) Store Count Area (Sqft mn) North 2779 5.9 57 0.3 South 3515 12.1 121 0.5 East 2670 5.0 57 0.4 West 3237 8.2 92 0.4 Total 12201 31.2 327 1.6 Source: Company, Edelweiss Research

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Area under coverage rose 18.6% YoY; revenue per sq ft fell 38.6% YoY

35 19,500

28 17,000

21 14,500 Sqft 14 12,000 (INR/sqft)

7 9,500

0 7,000

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21 Q3FY21 Area under coverage (Sqft) Revenue per sqft (RHS)

Source: Edelweiss Research

Retail turnover fell 27.2% YoY

Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Revenue (INR mn) 1,87,980 2,41,830 2,31,080 3,24,360 3,55,770 3,26,190 3,81,960 4,12,020 4,53,270 3,82,110 3,16,330 3,65,660 3,30,180 EBITDA (INR mn) 6,040 10,860 12,060 13,920 16,800 19,230 20,490 23,220 27,270 25,560 10,830 20,090 30,870 Revenue growth (%) 116.4 134.1 99.7 121.5 89.3 34.9 65.3 27.0 27.4 17.1 (17.2) (11.3) (27.2) EBITDA margins (%) 3.2 4.5 5.2 4.3 4.7 5.9 5.4 5.6 6.0 6.7 3.4 5.5 9.3 Source: Edelweiss Research

Rapidly growing e-retail prospects in India

 India's e-commerce retail market stood at USD30bn in 2019 and is likely to grow at CAGR 30% over (2019-2026), thereby improving market penetration to 12% from 2% currently (source: Invest India).  Online digital spending in India is currently estimated at around USD45- 50bn and is projected to increase 11x to USD550bn by 2025 (source: Invest India).  Flipkart and Amazon together accounted for ~63% of overall e-retail market share in India in 2018. (Source: Forrester Research)

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India e-retail market is likely to post CAGR of 30% over 2019-26

250 14%

12% 200 10%

150 8%

100 6% 4% 50 2%

0 0% 2019 2026

India E-commerce retail market (USD bn) Market penetration (%, RHS)

Source: Edelweiss Research

Flipkart & Amazon accounted for major e-retail market share in 2018

Indian E-Commerce market, 2018 (%)

Flipkart 26.20% 31.90% Amazon Myntra Paytm mall 1.80% Snapdeal 1.90% 3.30% Big basket 4.70% Others

31.20%

Source: Forrester Research

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Operational peer matrix: RIL’s revenue/sq ft has risen 2x to highest EBITDA/sq ft

FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E Revenue(INR mn) Reliance Retail 161116 183300 264377 514562 1019465 1303674 1577445 2366168 Future Retail NA 68451 170751 184780 203326 NA NA NA Vmart 7202 8093 10017 12224 14337 16620 9165 17830 Dmart 64394 85838 118977 150332 200045 248702 236573 336198 EBITDA (INR mn) Reliance Retail 8524 9120 11632 23643 59201 91390 102534 153801 Future Retail NA 834 5813 8323 10364 NA NA NA Vmart 636 620 826 1328 1329 2138 807 2318 Dmart 4590 6636 9812 13528 16333 21283 17175 29165 Area (mn sqft) Reliance Retail 12.5 12.8 13.5 17.7 22.0 28.7 31.6 37.9 Future Retail NA 12.9 13.8 15.7 16.0 NA NA NA Vmart 0.9 1.0 1.2 1.4 1.8 2.2 2.3 2.6 Dmart 2.7 3.3 4.1 4.9 5.9 7.8 8.3 10.3 Revenue(INR / sqft) Reliance Retail 12889 14320 19583 29071 46339 45424 49967 62458 Future Retail NA 5306 12400 11762 12679 NA NA NA Vmart 9504 9072 9588 9876 9660 NA NA NA Dmart 26831 28660 32026 33407 37045 36307 29479 36297 Revenue / store (Mn/store) Reliance Retail 61.5 56.5 73.1 134.1 97.9 110.6 121.7 152.1 Future Retail NA 91.0 193.1 173.1 129.3 NA NA NA Vmart 66.7 65.8 71.0 71.5 67.0 62.5 32.6 56.4 Dmart 723.5 780.3 908.2 969.9 1136.6 1162.2 1056.1 1249.8 EBITDA(INR / sqft) Reliance Retail 682 713 862 1336 2691 3184 3248 4060 Future Retail NA 65 422 530 646 NA NA NA Vmart 720 612 691 922 743 972 348 891 Dmart 1726 1993 2393 2761 2768 2729 2082 2838 EBITDA/ store (Mn/store) Reliance Retail 3.3 2.8 3.2 6.2 5.7 7.8 7.9 9.9 Future Retail NA 1.1 6.7 8.0 6.9 NA NA NA Vmart 5.9 5.0 5.9 7.8 6.2 8.0 2.9 7.3 Dmart 51.6 60.3 74.9 87.3 92.8 99.5 76.7 108.4 Stores Reliance Retail 2621 3245 3616 3837 10415 11784 12962 15555 Future Retail NA 738 864 1035 1511 NA NA NA Vmart 108 123 141 171 214 266 281 316 Dmart 89 110 131 155 176 214 224 269 OCF/ Capital employed Reliance Retail 7.2% 15.6% 35.7% 4.6% 6.6% 14.9% 11.7% 11.5% Future Retail NA 8.7% 5.2% 13.4% -5.1% NA NA NA Vmart 16.6% 17.5% 21.9% 16.7% 18.7% 9.7% 13.5% 13.6% Dmart 11.1% 16.6% 9.1% 14.7% 13.3% 11.3% 13.3% 11.7%

Source: Edelweiss Research

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Traditional retail valuation comparison

Div yield EPS CAGR Mcap EV/EBITDA( x) ROCE (%) Company (%) (%) (USD mn) FY20 FY21E FY22E FY20 FY21E FY22E FY21 FY20-22E India Grocery Reliance Retail NA 2.6 2.4 1.6 34.3 35.6 42.5 0.0 34.2 Avenue Supermarts 25,416 66.7 108.9 61.6 17.5 9.1 14.5 0.0 23.6 India Grocery-Mean 25.4 40.0 23.7 18.9 16.1 20.2 0.0 28.9 India Apparel ABFRL 1,979 NA 24.6 18.5 11.1 15.1 14.4 0.0 NA FLFL 262 4.9 6.8 4.1 2.0 -8.3 -2.3 0.4 NA 3,218 34.9 153.0 35.3 3.4 -4.5 3.6 0.1 20.7 V-Mart 623 25.3 17.7 14.2 NA NA NA 0.0 NA India Apparel -Mean 21.7 50.5 18.0 5.5 0.8 5.2 0.1 20.7 India Footwear Bata 2,762 19.3 73.8 26.6 12.3 0.4 10.1 0.2 7.0 India jewellery Titan 18,144 32.8 84.6 44.3 14.6 8.5 14.9 0.3 17.4 India retail-Mean 24.2 53.4 23.8 12.5 7.4 12.7 0.1 20.6 US Retailing GAP 8,457 4.4 NA 5.9 6.0 -8.5 5.0 0.4 1.1 Kroger 25,284 6.7 5.5 6.0 5.8 8.4 5.7 2.1 8.0 Costco 1,60,704 20.5 19.3 18.1 14.7 16.0 16.0 1.7 11.8 Walmart 4,09,822 11.2 12.9 12.7 9.8 11.3 9.9 1.5 7.4 US Retailing-Mean 10.7 12.6 10.7 9.1 6.8 9.2 1.4 7.1 Europe Retailing M&S 3,782 5.9 8.0 6.3 5.5 1.2 3.3 0.0 -2.4 H&M 36,349 11.0 15.9 10.0 1.5 1.5 14.9 2.7 136.3 Inditex 96,512 12.2 15.9 11.3 17.5 6.8 13.9 2.3 -1.0 Carrefour 14,721 6.0 6.4 6.2 3.7 3.7 3.9 3.0 4.1 Europe Retailing-Mean 8.8 11.5 8.5 7.0 3.3 9.0 2.0 34.2 Japan Retailing Fast Retailing 93,949 18.2 21.8 19.6 4.9 9.0 9.4 0.6 37.1 Japan Retailing-Mean 18.2 21.8 19.6 4.9 9.0 9.4 0.6 37.1 Source: Edelweiss Research

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O2C: Subdued by lower cracks and lower throughput RIL posted O2C EBITDA of INR97.5bn (down 29.2% YoY and up 8.8% QoQ). Throughput came in at 16.7MMT (down 7.7% YoY).

Throughput of 16.7MMT (15.3MMT in Q2FY21) implies utilisation of 107.7%. GRM premium over Singapore benchmark stood subdued though not disclosed explicitly led by weaker cracks in Q3FY21.

Healthy downstream product deltas–key polymer deltas at multi-year high. Optimized feedstock procurement and product yield shifts. Feedstock throughput at 18.2 MMT, up 8.3% QoQ.

Higher volumes and improved product realization with revival in demand across sectors. Domestic oil product demand grew 19% QoQ.

Oil demand recovered to 99% pre-covid levels in December. Gasoline & Diesel demand were hovering at 110% & 103% pre-covid levels, respectively.

Global mobility indicators primarily led by Asia continue to improve, wherein Asia (ex-China) is at 113% and China is at 103% (Base: Jan-20).

AL-AH differential turned negative for the first time in two decades at $ -0.2 /bblin 3Q FY21.

Polymer/polyster demand grew 8%/38% QoQ (currently well above pre-covid levels). Key sectors of Health & Hygiene and Pipes grew by nearly 15% QoQ.

Global cracking rates improved to 85.7% in 3QFY21 vs. 84.3% in 2QFY21. Demand for PE, PVC from irrigation and construction increased 14% QoQ. PVC margins improved well above 10 year average levels led by supply constraints.

O2C operating excellence

Production meant for sale (mmt) Q3FY21 Q2FY21 Change Q0Q% Transportation fuels 9.7 8.7 11% Polymers 1.5 1.5 0% Fiber Intermediates 1.1 1.1 0% Polyster 0.6 0.6 0% Chemicals and Others 3.3 3.0 10% Total 16.2 14.9 9% Source: Company, Edelweiss Research

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Refinery throughput fell to 16.7MMT with 107.7% capacity utilisation 22.0 120.0

18.8 115.0

15.6 110.0 (%)

12.4 105.0 (mn tonnes)

9.2 100.0

6.0 95.0

Q1FY15

Q3FY15

Q1FY16

Q3FY16

Q1FY17

Q3FY17

Q1FY18

Q3FY18

Q1FY19

Q3FY19

Q1FY20

Q3FY20

Q1FY21 Q3FY21 Refinery throughput Capacity utilisation (RHS)

Source: Edelweiss Research

FO/ naphtha cracks improved QoQ Gasoline and gasoil cracks improved QoQ 8.0

21.5 1.6 17 (4.8) 12.5

(11.2) (USD/bbl) (USD/bbl) 8 (17.6) 3.5

(24.0) -1

Q3FY15

Q1FY16

Q3FY16

Q1FY17

Q3FY17

Q1FY18

Q3FY18

Q1FY19

Q3FY19

Q1FY20

Q3FY20

Q1FY21

Q3FY21

Q3FY14

Q1FY15

Q3FY15

Q1FY16

Q3FY16

Q1FY17

Q3FY17

Q1FY18

Q3FY18

Q1FY19

Q3FY19

Q1FY20

Q3FY20

Q1FY21 Q3FY21 Naphtha cracks Fuel oil Gasoline cracks Diesel cracks

Source: Edelweiss Research Source: Edelweiss Research

Advantage of first mover in O2C

Source: Edelweiss Research, Company

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RELIANCE INDUSTRIES

Deep and unique integration across O2C sites

Source: Edelweiss Research, Company

Polymer margin growth Polymer India demand growth

Source: Edelweiss Research, Company Source: Edelweiss Research, Company

Polyster India demand growth Polyster chain margins

Source: Edelweiss Research, Company Source: Edelweiss Research, Company

Refining: Severe pain, greater gain; RIL highly competitive The near-term refining cycle is poised to remain painful. Global oil economics consultant FGE forecasts global refinery utilisation would remain below 75% and Singapore complex GRM negative for most of 2020.

However, on the flip side, acute pain will result in a permanent closure of high-cost refineries, particularly in the EU and Japan, which have high operating costs exceeding USD5/bbl. In sharp contrast, RIL’s operating cost is among the lowest

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RELIANCE INDUSTRIES

globally at USD2–2.25/bbl. Its capital cost is also lower by more than 20%. Permanent closures augur well for the long-term health of the industry.

While FGE expects the next few years to be very challenging for refiners, those that can successfully manage their way through them will likely see better times in the long term, perhaps even a Silver Age!

Indian refiners dominate operating cost curve

7.0

5.8

4.6

3.4 (USD/ bbl) (USD/ 2.2

1.0

IOCL

BPCL

HPCL

BORL

HMEL

Thai Oil Thai

Relaince

Valero (US)

Tesero (US)Tesero Marathon (US)

Source: Edelweiss Research

Distillate-heavy and highly complex refiners such as RIL earn superior GRMs

80.0 Indian refiners lie at the top end of the spectrum with high distillate yield and PTT 64.0 IOCL Repsol S-Oil BPCL SK Energy 48.0 Total Sinopec Exxon Mobil HPCL Shell Reliance 32.0 AndeavorMarathon 16.0 PetroChina Aramco Middle Distillate Middle Distillate Yield (%) Refining Capacity 0.0 0 4 8 12 16 20 24 Nelson Complexity Index

Source: Edelweiss Research Refinery runs are likely to recover from Jan 2021 According to FGE, an oil economics specialist, global monthly refinery runs would increase and there will be an increase in throughput from Jan’21 as global oil demand recovers. Recovery of oil demand also depends on seasonal winter demand; refinery utilisation will rise accordingly.

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RELIANCE INDUSTRIES

Global refinery runs to recover from Q1CY21

Source: Edelweiss Research

Complex margins to get better from Jan-21

Source: Edelweiss Research

Gasoline cracks to increase from Jan’21 owing to increase in demand

Source: Edelweiss Research

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RELIANCE INDUSTRIES

Global refining valuation comparison

Div yield EPS CAGR Mcap Diluted EPS (LC) EV/EBITDA( x) ROCE (%) Company (%) (%) (USD mn) FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY21E FY20-22E India OMC Limited 12,461 (1.0) 12.8 26.2 29.4 5.6 3.3 0.2 7.7 13.1 7.5 NA Corporation Limited 11,800 15.5 26.9 36.2 17.8 10.5 9.3 5.1 7.1 8.2 3.3 52.6 Corporation Limited 4,555 17.3 19.3 37.9 5.9 4.8 2.5 2.4 5.6 9.2 6.0 48.1 India OMC-Mean 17.7 6.9 5.1 2.6 6.8 10.2 5.6 50.4 India Refining Reliance Industries Limited 1,73,735 62.1 54.4 92.5 17.4 19.0 12.6 10.6 9.9 12.2 0.3 22.1 Chennai Petroleum Corp Ltd 247 (76.2) 35.0 17.1 5.6 4.4 4.4 10.1 13.5 13.5 0.0 NA India Refining-Mean 11.5 11.7 8.5 10.3 11.7 12.8 0.1 22.1 US Refining Marathon Petroleum Corp 29,533 (3.9) (0.8) 2.1 6.4 20.0 13.8 -8.0 -8.0 -2.7 5.0 NA Phillips 66 31,956 (0.8) 3.1 6.1 11.6 34.1 11.1 -1.3 8.9 8.9 4.9 NA Valero Energy Corp 24,002 (3.4) 0.5 4.4 7.4 35.5 10.6 -4.4 -4.4 0.7 6.7 NA US Refining-Mean 8.5 29.9 11.8 -4.6 -1.2 2.3 5.5 NA Europe Refining Rubis 4,893 2.6 2.9 3.1 10.0 9.1 8.2 6.4 6.4 6.9 4.4 NA Dcc Plc 7,763 3.5 3.5 3.8 8.5 9.7 9.0 6.9 6.8 6.9 2.7 4.4 Europe Refining-Mean 9.3 9.4 8.6 6.6 6.6 6.9 3.5 4.4 APAC Refining Vietnam National Petroleum 2,868 862 2,703 3,165 10.0 19.2 10.1 3.1 3.1 9.6 3.0 NA Petrochina 1,11,360 0.1 0.1 0.2 4.8 4.7 4.7 1.0 1.0 1.3 7.2 NA Sinopec 73,066 0.3 0.4 0.4 4.7 5.8 4.4 3.2 3.2 4.2 6.3 16.2 APAC Refining-Mean 6.5 9.9 6.4 2.4 2.4 5.0 5.5 16.2 Source: Edelweiss Research

Global petrochemical valuation comparison

Div yield EPS CAGR Mcap Diluted EPS (LC) EV/EBITDA( x) ROCE (%) Company (%) (%) (USD mn) FY20 FY21E FY22E FY20 FY21E FY22E FY20 FY21E FY22E FY21E FY20-22E India Petchem Indian Oil Corporation Limited 12,461 (1.0) 12.8 26.2 29.4 5.6 3.3 0.2 7.7 13.1 7.5 NA Reliance Industries Limited 1,73,735 62.1 54.4 92.5 17.4 19.0 12.6 10.6 9.9 12.2 0.3 22.1 India -Mean 30.6 33.6 59.4 23.4 12.3 8.0 5.4 8.8 12.7 3.9 22.1 US Petchem Dupont DE Nemours INC 59,427.1 3.2 3.5 3.8 10.4 14.9 14.0 3.7 8.9 8.9 1.5 10.1 Phillips 66 31,956 (0.8) 3.1 6.1 11.6 34.1 11.1 -1.3 8.9 8.9 4.9 NA Valero Energy Corp 24,002 (3.4) 0.5 4.4 7.4 35.5 10.6 -4.4 -4.4 0.7 6.7 NA US -Mean (0.3) 2.4 4.8 9.8 28.2 11.9 -0.7 4.5 6.2 4.4 10.1 Europe Petchem Basf Se 73,858 2.8 4.0 4.6 9.3 11.3 8.9 1.4 1.4 6.0 4.6 22.7 Lyondellbasell Indu-Cl A 30,928 4.8 7.6 8.5 7.5 11.7 8.4 7.5 7.5 12.2 4.5 27.4 Europe -Mean 3.8 5.8 6.5 8.4 11.5 8.7 4.4 4.4 9.1 4.6 25.0 Middle-East Petchem Saudi Basic Industries Corp 83,011 0.2 3.1 4.3 9.1 11.2 9.9 0.2 4.0 6.4 3.5 227.3 Aldrees Petroleum and Transp 1,059 1.8 3.0 3.6 9.3 12.7 11.5 3.7 5.7 6.3 2.9 NA Middle East -Mean 1.0 3.0 4.0 9.2 12.0 10.7 2.0 4.9 6.3 3.2 227.3 APAC Petchem Sumitomo Chemical Co Ltd 7,553 19 24 43 8.3 8.5 7.7 2.4 2.1 3.9 2.5 42.5 Petrochina 1,11,360 0.1 0.1 0.2 4.8 4.7 4.7 1.0 1.0 1.3 7.2 NA Sinopec 73,066 0.3 0.4 0.4 4.7 5.8 4.4 3.2 3.2 4.2 6.3 16.2 APAC -Mean 6.4 8.2 14.7 5.9 6.3 5.6 2.2 2.1 3.2 5.3 29.4 Source: Edelweiss Research

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Upstream KG-D6: Embarking on large growth opportunity from Dec’20

R-Cluster development

All wells drilled, completed, tested and connected; sub-sea installation and testing works completed. Balance works on Control & Riser Platform are currently underway. Full commissioning will be done by CY21 but have started production of 4.5mmscmd.

Satellite Cluster development

All five wells were completed. The Drilling and Completion campaign is underway. Final installation campaign is on track and would be done by Q4FY21. First gas is expected in mid-2021

MJ development

The Drilling & Completion campaign is underway. First Offshore Installation campaign is on track for Q4FY21. Pre-commissioning and commissioning are likely to take place in Q3CY22.

MJ Development Project progress

Source: Edelweiss Research, Company

KGUDW1 development

Infrastructure led exploration is planned in proven geological fairways. Seismic campaign being undertaken in Q4FY21.

MJ- FPSO progress

Source: Edelweiss Research, Company

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RIL’s total domestic oil & gas production continues to trend down

15.0 7.5

12.0 6.0

9.0 4.5

(Kbopd) 6.0 3.0 (mmscmd)

1.5 3.0

0.0 0.0

Q3FY15

Q1FY16

Q3FY16

Q1FY17

Q3FY17

Q1FY18

Q3FY18

Q1FY19

Q3FY19

Q1FY20

Q3FY20

Q1FY21 Q3FY21 Oil production Gas production (RHS)

Source: Edelweiss Research

SOTP valuation: TP of INR2,105/share

Base Base Base value value value % Comments (INR/share) (USD bn) (INR bn) Refining (@ EV/FY22E EBITDA = 9.5x) 36.2 2,678 415 20% Global Refining peers trade at 6.9x. Assumed GRM of USD6.2/bbl, USD9.7/bbl in FY21/22 Petchem (@ EV/FY22E EBITDA = 9.5x) 44.0 3,255 505 24% Global petchem peers trade at 7.1x. Assumed EBITDA of USD97/mt, USD133 in FY21/22 India Upstream 5.5 407 63 3% DCF basis. Includes CBM, R-Series and Satellite fields BP Petro Retail @51% stake 1.2 91 14 1% 20% premium to BP Plc's acquisation of 49% during 2019-20 Retail (@ EV/FY22E EBITDA = 26x) 50.2 3,716 577 28% Indian retail peers trade at 26x JIO Mart 6.0 441 68 3% Valued at 35x gross margin, similar to D-Mart Retail + JIO Mart 56 4,157 645 Less: Minority Interest in Retail 7.8 575 89 RIL's holding in Retail business 42.4 3,141 487 RIL has 85.05% stake in RIL Retail Digital (Implied EV/EBITDA=11x) 70.7 5,232 812 Less: Minority Interest in Jio 23.7 1,754 272 RIL's holding in Digital business 47.0 3,478 540 26% DCF based EV of INR 5.2 trn; 33.52% stake held by PE funds Value of operating assets 182 13,491 2,093 100% Net debt 3.8 279 43 2% Value of non operating assets 25.1 1,859 288 12% At book value SOTP (pre-holdco discount) 204 15,071 2,338 100% Before Holding co discount Less: Holding company discount (10%) 20.4 1,507 234 10% Holdiing company discount SOTP 183.3 13,564 2,105 CMP 13,212 2,050 Return on CMP (%) 2.7% Source: Edelweiss Research

Breakdown of retail valuation

FY22, INR bn EBITDA Multiple Value Core retail 137.4 26.0 3573.5 Petro 1.2 26.0 32.2 Connectivity 16.4 5.0 81.8 Futre Group acquisition 15.6 16.0 249.6 Combined Value 155.0 25.4 3,937.1 Shares 6,445 Source: Edelweiss Research

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Financial snapshot

Year to March Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % YTD21 FY21E FY22E Net revenues 11,78,600 15,29,390 (22.9) 11,12,360 6.0 31,73,490 50,01,138 66,85,939 Raw material costs 7,22,490 10,54,710 (31.5) 7,14,510 1.1 19,11,640 34,02,117 44,93,269 Gross profit 4,56,110 4,74,680 (3.9) 3,97,850 14.6 12,61,850 15,99,021 21,92,670 Employee expenses 42,440 38,800 9.4 34,290 23.8 1,08,410 1,21,603 1,41,093 Other expenses 1,98,010 2,12,020 (6.6) 1,74,110 13.7 5,79,580 6,27,270 7,66,081 EBITDA 2,15,660 2,23,860 (3.7) 1,89,450 13.8 5,73,860 8,50,148 12,85,495 Depreciation & amortisation 66,650 55,450 20.2 66,260 0.6 1,95,990 2,70,393 3,34,850 EBIT 1,49,010 1,68,410 (11.5) 1,23,190 21.0 3,77,870 5,79,755 9,50,645 Less: Interest Expense 43,260 54,040 (19.9) 60,840 (28.9) 1,71,450 2,59,724 1,92,533 Add: Other income 44,530 36,450 22.2 42,490 4.8 1,30,900 2,28,409 1,43,777 Profit before tax 1,50,280 1,50,820 (0.4) 1,04,840 43.3 3,37,320 5,48,440 9,01,889 Less: Provision for Tax 880 31,210 (97.2) -130 (776.9) 3,350 1,37,839 2,41,058 Reported Profit 1,31,010 1,16,400 12.6 95,670 36.9 3,59,010 3,67,811 6,25,533 Adjusted Profit 1,32,220 1,18,170 11.9 95,670 38.2 3,10,560 3,67,811 6,25,533 No. of Shares outstanding (mn) 6,445 6,338 1.7 6,445 0.0 19,335 5,926 5,926 Adjusted Diluted EPS 20.5 18.6 10.0 14.8 38.2 48.2 54.4 92.5

As % of net revenues Gross profit 38.7 31.0 35.8 39.8 32.0 32.8 EBIDTA 18.3 14.6 17.0 18.1 17.0 19.2 Net profit 11.1 7.6 8.6 11.3 7.4 9.4 Tax rate 0.6 20.7 (0.1) 1.0 25.1 26.7 Source: Edelweiss Research

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Major company assumptions RIL FY19 FY20 FY21E FY22E FY23E COMPANY ASSUMPTIONS Petchem 0.1 0.1 1.1 2.1 3.1 Naphtha cracking margins (USD/mt) 842 526 494 529 606 Polypropylene margins (USD/mt) 192 184 188 191 195 Paraxylene margins (USD/mt) 453 255 240 245 250 PTA margins (USD/mt) 211 190 193 197 201 MEG margins (USD/mt) 68 31 50 50 51

Chemicals 0.1 0.1 1.1 2.1 3.1 Chemicals production (mmt) 31.1 31.6 32.5 35.2 36.3 Chemicals EBITDA (USD/mt) 173 138 97 133 149

Refining 0.1 0.1 1.1 2.1 3.1 Refining throughput (mmt) 68.3 70.6 63.3 68.7 69.9 GRM (USD/bbl) 9.2 8.9 6.2 9.7 11.1

India E&P 0.1 0.1 1.1 2.1 3.1 Gross gas production - KG-D6 (mmscmd) 2.0 1.7 2.5 8.3 17.5

Telecom Subscribers (mn) 306.7 387.5 423.3 467.3 470.3 ARPU (INR) 131.2 126.9 146.4 175.6 200.6 EBITDA growth (%) 124.2 42.9 43.7 42.6 20.8

Retail Area (mn sq ft) 22.0 28.7 31.6 37.9 45.5 Number of stores 10,415 11,784 12,962 15,555 18,666 EBITDA growth (%) 146 60 7 49 56 Source: Edelweiss Research

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Company Description

RIL is the largest private player in the refining, petrochemical, E&P, digital and organized retail sectors in India. While RIL’s refining complex in Jamnagar is the largest in the world and among the most complex, it is also among the largest integrated petrochemical producers globally. Its consumer business (JIO and Retail), which has picked up the scale in the last 4-5 years will contribute 50% of the total EBITDA by FY25 which is currently dominated by Oil to Chemical business. RIL has a weight of 13% in BSE Sensex and is the only Indian company which has crossed USD150bn in valuations.

Investment Theme

RIL’s strength lies in its ability to build businesses of global scale and execute complex, time-critical, and capital-intensive projects which will prove advantageous as it embarks on large investments in all segments.

We expect its consumer business (Digital and Retail) to contribute ~50% of EBITDA from FY25 given its strong expansion and customer base.

We are now giving rich valuations to JIO and Retail seeing its huge potential, though remain positive on their core O2C business (both refining and chemicals). We believe refining margins in Asia will rise due to a “paradigm shift in regional refining dynamics” from West to East, which will favor a complex refiner like Reliance. Global utilization rates have bottomed out in chemicals.

RIL is almost done with its capex cycle, investing in world-scale projects like petcoke gasification, off-gas crackers and telecoms, which are expected to drive future growth in months to come has started commissioning and remaining projects of KG- D6 will start soon.

Key Risks

Slow down in global demand or larger than expected capacity additions could impact RIL’s refining and chemical margins. Delays in government approvals for India E&P or weak domestic gas prices could hamper progress in upstream.

Weak natural gas prices could lower the profitability of upstream assets. Rupee appreciation may impact negatively as RIL is positively leveraged to the depreciating currency. About half of RIL business is in unrelated diversifications, especially telecoms & related, which would attract a conglomerate discount.

Our reverse DCF calculation suggests that (especially) for Jio Platforms and Retail the market is baking-in very high earnings growth expectation sustaining over the next 10 years, which by any measure is a tall ask.

Deleveraging to zero-debt has swung the needle to the other extreme, raising RIL’s WACC to match cost of equity (CoE). The sharp rise in WACC precipitates a negative economic spread for RIL even after we assume robust earnings growth.

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RELIANCE INDUSTRIES

Additional Data Management Holdings – Top 10* Chairman and Mukesh D Ambani % Holding % Holding Managing Srichakra Comme 11.67 Reliance Indust 4.80 DirectorNon Executive Nita Ambani Non Independent KARUNA COMMERCI 8.61 Capital Group C 4.32 DirectorExecutive P M S Prasad Director Tattvam Enterpr 8.61 PETROLEUM TRUST 3.80 Executive Pawan Kumar Kapil Director Devarshi Commer 8.61 RELIANCE SERVIC 2.71 Auditor E&Y Life Insurance 5.86 FMR LLC 2.32

*Latest public data

Recent Company Research Recent Sector Research Date Title Price Reco Date Name of Co./Sector Title

01-Nov-20 Painful revival; Result Update 2054.5 Hold 05-Jan-21 Oil & Gas Going gets better; Sector Update

Future value: Synergistic Poised for structural volume 31-Aug-20 0 Hold 04-Jan-21 acquisition; Company Update acceleratio; Company Update Weak earnings but no surprises Clearing the air: New regime bodes 31-Jul-20 2109 Hold 18-Dec-20 Oil & Gas here; Result Update well; Sector Update

Rating Interpretation Daily Volume 175 2325 TP 2,105 TP 2030 140 1,844

1735 105

(INR) TP 1,415 1440 (Mn) 70

1145 35 850 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 0 RIL IN Equity Buy Hold Reduce Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Source: Bloomberg, Edelweiss research Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage Rating Rationale

Buy Hold Reduce Total Rating Expected absolute returns over 12 months

Rating Distribution* 163 64 14 241 Buy: >15%

>50bn >10bn and <50bn <10bn Total Hold: >15% and <-5%

Market Cap (INR) 189 56 6 251 Reduce: <-5% * stocks under review

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Aditya Narain Head of Research [email protected]

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