Report of company- Ltd. Sector: Energy Industry: Oil, Gas & Consumable Fuels

Current Price: 1126.55 BUY Target Price: 1368

Reliance Industries Ltd. manufactures petrochemicals, synthetic fibers, fiber intermediates, textiles, blended yarn and polyester staple fiber. The Company also owns a petroleum refinery cum petrochemicals complex in Jamnagar, India that produces a wide range of products such as gasoline, superior kerosene oil and liquefied petroleum gas.

Website http://www.ril.com/ Revenue(M) 39,16,770 Mn Address Maker Chambers - IV Current Price 1,126.55 Nariman Point Mumbai, 52 Week High 1,329.00 400 021 India 52 Week Low 836 No of Employees 24,167 Mkt Cap(M) 71,36,301 Mn

One Year Daily Price and Volume Volume Adj Close

52 Week Beta 1.379981 1400 30 1M Return -13.2% 1300 25 6M Return 22.5% 1200 20 52 Week Return 33.4% 1100 15

YTD Return 22.7% Price Next Earnings 17-Oct-18 1000 10 Announcement

900 5 Volume inMillions Prior 27-Jul-18 Announcement 800 0

1% 1% Revenue Segmentation 2% Refining 53.16%

16% Petrochemicals 26.52%

Organized Retail 15.96% 53% 27% Others - Crude Petroleum 2.12%

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected] Credit Ratings Rating Outlook S&P BBB+ STABLE Moody's Baa2 STABLE Fitch BBB- STABLE

Key Insights • Company has a pending deal to acquire Corp for INR 5.6B, announced Jun 30, 2018. • Company has a pending deal to acquire Alok Industries Ltd for INR 50.5B, announced Jun 22, 2018 • Next earnings announcement is scheduled for Oct 17. The company beat EPS estimates 7 times in the past 10 fiscal periods. • India refined petroleum products production volume rose 5.1% YoY in August, for a total of 13 consecutive monthly increases, India Central Statistical Organisation data show. Company sales are 53.2% from petroleum refining (BICS level 4).

Recent Developments M&A Target: Cable & Datacom Ltd | INR 35.0B 3-Oct-18 Proposed (Sought: 100%) Investment Acquirer: Multiple acquirers / Target: NetraDyne Inc| INR 1.5B 27-Sep-18 Announced Investment Target: NetraDyne Inc | INR 580.6M 26-Sep-18 Announced M&A Acquirer: Brookfield Asset Management Inc / Target: East West 17-Sep-18 Proposed Pipeline Ltd | INR 140.0B (Sought: 100%)

Key Executives NAME TITLE AGE TENURE START Mukesh Chairman/Managing Director 61 - - Pawan Kumar Kapil Whole-Time Director 64 8 05-Jan-10 Alok Agarwal Chief Financial Officer - - - Srikanth Joint Chief Financial - - - Venkatachari Officer - - - K Sethuraman Chief Compliance Ofcr/Secy - - - Nikhil R Meswani Executive Director 52 30 07-Jan-88 Hital R Meswani Executive Director 50 23 08-Jan-95 P M S Prasad Executive Director 66 9 08-Jan-09

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected] Ownership

Top 5 Countries Top 15 by % of Shares Outstanding Held India 78.59% Devarshi Commercials 11.21% United States 16.66% Srichakra Commercial 10.87% Luxembourg 1.42% Karuna Commercials 8.02% Ireland 0.61% Life Insurance Corp 7.86% Japan 0.54% Tattvam Enterprises 6.81% Capital Group Company 5.31% Reliance Industries 4.06% Top 5 Institutional Types Petroleum Trust 3.80% Other 38.95% Blackrock 1.82% Investment Advisor 25.12% Vanguard Group 1.76% Corporation 11.84% Fmr LLC 1.73% Government 10.85% Reliance Chemicals 0.98% Holding Company 5.34% Dimensional Fund Adv 0.86% Sbi Funds Management 0.85% Hdfc Asset Management 0.72%

Analysis: RIL Industry Research Effect Reliance Industries Ltd. is set to dominate the Indian telecom and organized-retail segments through aggressive expansion capitalizing on its strong energy business. Over $7 billion in annual cash flow from RIL's energy business provides a war chest to win market share from retail and telecom incumbents. Analysts believe industry consolidation, rising ARPU and data consumption should lift intrinsic value of its telecom unit Jio to match RIL's market cap in five years. Integration of its retail and telecom offerings will create a compelling offline- online platform to take the fight to Amazon and Walmart.

Subscriber Fight to Extend After Consolidation The fight for subscribers among India mobile carriers remains intense, even though the India's Mobile Subscriber number of private operators is set to be cut Market Share to three from nine due to industry 10% consolidation. Reliance Jio will probably Vodafone Idea need to add at least s100 million users to its 20% 38% Limited Bharti Airtel 200 million customer base, before achieving its goal to lead the revenue tables. This Jio would translate into a share of nearly 30% of 32% BSNL the nation's 1.1 billion mobile phone users. Jio took less than six months to grab its first 100 million users, then about 15 months to add another 100 million.

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected] Cash Flows Help RIL Diversify Reliance Industries' refinery and petrochemical facilities, which are among world's most- efficient, low-cost plants, churn out strong sustainable cash flows, allowing it to fund aggressive expansion in retail and telecoms. RIL's refining and petrochemical earnings should continue to improve in fiscal 2019 with the ramp-up of newly commissioned projects. Profit at its organized retail business is rising sharply as operating leverage kicks in. Retail business earnings have trebled in the past year and have the potential to rise further based on the average margin of global peers. A similar trend should follow in its telecom business with a rising subscriber base. Reliance Jio aims to surpass Bharti Airtel's 300 million subscribers to become India's No. 1 telco, before shifting away from a low-price strategy and an IPO. Petrochemical business is RIL's biggest earnings contributor at 44%, with refining close behind at 38%. Reliance Jio and retail businesses contribute 10% and 7%.

Valuation Calculation of Cost of Equity 10-year Govt Bond Benchmark- SENSEX, Calculated Risk Free Rate = on Weekly Returns for 3 years 7.98% Cost of Equity= Beta = 1.29 13.19% Expected Market Return =12.01% Equity Risk

Premium =5.21% Country Premium =4.03% Risk Free Rate =7.98%

Calculation of Cost of Debt Historical Average Tax rate

(1- Effective Tax ST Debt =34% of Rate) = 73% total Debt Short term Weighted Cost =2.33% Note Rate =6.85% Cost of Debt Total Pre-Tax Cost =7.26% of Debt= 7.21%

LT Debt =66% of total Long term Debt Weighted Cost Debt Adjustment =4.88% Factor=1.38 Bond Rate =7.4%

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected]

Calculation of WACC

Capital Distribution

15%

8% Current Market Cap Short Term Debt Long Term Debt

77%

WACC calculation

Cost of Equity =13.19%

Weighted Cost of Equity =10.09% Weight of Equity =77%

WACC =11.80%

Cost of Debt =7.26% Weighted Cost of Debt =1.70% Weight of Debt =23%

Historical WACC

15% 13%

11% 9% 7%

5% 3% FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

WACC Cost of Equity Cost of Debt

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected] DCF Highlights In Millions of INR Mar 17 A Mar 18 A Mar 19 E Mar 20 E Mar 21 E Mar 22 E Mar 23 E Mar 24 E Trend Revenue 30,53,820 39,16,770 46,21,789 53,15,057 60,06,014 66,06,616 71,35,145 75,63,254 % YoY Growth 10% 28% 18% 15% 13% 10% 8% 6% EBITDA 4,63,070 6,43,150 7,46,314 8,71,188 10,45,754 11,00,727 11,88,785 12,00,648 % Margin 15% 16% 16% 16% 17% 17% 17% 16% Free Cash Flow (72,391) (59,797) 2,96,865 5,21,824 8,23,264 8,10,210 9,04,669 10,18,473 % Margin -2% -2% 6% 10% 14% 12% 13% 13%

Recommendation: BUY Target Price: ₹1368, 21% upside potential. (Average of DCF and EBITDA Model) Average of Analyst Recommendation in BUY side: ₹1360

Perpetuity Growth Method EBITDA Multiple Method Current Price (INR) 1126.55 Current Price (INR) 1126.55 DCF Estimated Value per Share (INR) 1335.09 DCF Estimated Value per Share (INR) 1401.09 DCF Estimated Upside 19% DCF Estimated Upside 24%

Perpetuity Growth Terminal EBITDA Multiple 1335.09 2.5% 3.0% 3.5% 4.0% 4.5% 1401.09 7.6x 9.1x 10.6x 12.1x 13.6x 10.8% 1386.34 1464.42 1553.20 1655.03 1773.02 10.8% 1126.24 1296.29 1466.34 1636.40 1806.45 11.3% 1292.46 1360.44 1437.14 1524.35 1624.38 11.3% 1100.71 1267.01 1433.30 1599.60 1765.89 11.8% 1208.70 1268.31 1335.09 1410.44 1496.11 11.8% 1075.82 1238.46 1401.09 1563.73 1726.37 12.3% 1133.52 1186.11 1244.67 1310.28 1384.31 12.3% 1051.55 1210.62 1369.70 1528.77 1687.85 12.8% 1065.67 1112.32 1163.99 1221.53 1286.00 12.8% 1027.88 1183.48 1339.09 1494.69 1650.30

0.19 2.5% 3.0% 3.5% 4.0% 4.5% 0.24 7.6x 9.1x 10.6x 12.1x 13.6x

10.8% 23% 30% 38% 47% 57% 10.8% 0% 15% 30% 45% 60% Discount rate WACC Discount 11.3% 15% 21% 28% 35% 44% rate WACC Discount 11.3% -2% 12% 27% 42% 57% 11.8% 7% 13% 19% 25% 33% 11.8% -5% 10% 24% 39% 53% 12.3% 1% 5% 10% 16% 23% 12.3% -7% 7% 22% 36% 50% 12.8% -5% -1% 3% 8% 14% 12.8% -9% 5% 19% 33% 46% In Millions of INR Mar 17 A Mar 18 A Mar 19 E Mar 20 E Mar 21 E Mar 22 E Mar 23 E Mar 24 E Revenue (Estimate Comparable) 30,53,820 39,16,770 46,21,789 53,15,057 60,06,014 66,06,616 71,35,145 75,63,254 % YoY Growth 10% 28% 18% 15% 13% 10% 8% 6% (-) Operating Expenses/Income 27,07,210 34,40,680 40,60,002 46,69,003 52,75,973 58,56,330 63,24,837 67,67,575 % of Revenue 89% 88% 88% 88% 88% 89% 89% 89% (=) Operating Income 3,46,610 4,76,090 5,61,786 6,46,054 7,30,041 7,50,286 8,10,308 7,95,679 % Margin 11% 12% 12% 12% 12% 11% 11% 11% (-) Tax on Operating Income 85,931 1,26,887 1,31,065 1,54,376 1,76,182 1,99,024 2,14,541 2,25,555 (=) NOPAT 2,60,679 3,49,203 4,30,721 4,91,678 5,53,859 5,51,261 5,95,767 5,70,123 % Margin 9% 9% 9% 9% 9% 8% 8% 8% (+) Depreciation & Amortization 1,16,460 1,67,060 1,84,528 2,25,134 3,15,713 3,50,441 3,78,477 4,04,970 % of Revenue 4% 4% 4% 4% 5% 5% 5% 5% % YoY Growth 1% 43% 10% 22% 40% 11% 8% 7% (-) Capital Expenditure 7,81,090 7,39,530 7,39,530 7,39,530 6,93,732 6,93,732 6,93,732 6,93,732 % of Revenue 26% 19% 16% 14% 12% 11% 10% 9% % YoY Growth 67% -5% 0% 0% -6% 0% 0% 0% (-) Changes in Net Working Capital (3,24,520) (1,30,020) (3,82,686) (4,92,291) (5,79,928) (5,48,591) (5,57,950) (6,65,259) (+) Changes in Net Long Term Deferred Tax Liabilities 7,040 33,450 38,461 52,251 67,496 53,648 66,208 71,853 % of Revenue 0% 1% 1% 1% 1% 1% 1% 1% (=) Free Cash Flow (72,391) (59,797) 2,96,865 5,21,824 8,23,264 8,10,210 9,04,669 10,18,473 % Margin -2% -2% 6% 10% 14% 12% 13% 13% % YoY Growth -117% -17% -596% 76% 58% -2% 12% 13% Discount Factor WACC 11.8% 0.46 yrs remaining until next year, so mid year is 0.23 & 0.46yrs +half year is .96 Period for Discount Factor (Mid-Year Convention) 0.23 years 0.96 years 1.96 years 2.96 years 3.96 years 4.96 years Present Value of Free Cash Flow (5 Years) 2,89,298 4,68,677 6,61,374 5,82,189 5,81,453 5,85,507

EBITDA 4,63,070 6,43,150 7,46,314 8,71,188 10,45,754 11,00,727 11,88,785 12,00,648 % Margin 15% 16% 16% 16% 17% 17% 17% 16% % YoY Growth 11% 39% 16% 17% 20% 5% 8% 1%

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected] Perpetuity Growth Method - Value per Share EBITDA Multiple Method - Value per Share Free Cash Flow at Year 5 9,61,571 Terminal EBITDA at Year 5 11,94,717 WACC 11.8% WACC 11.8% Perpetuity Growth Rate 3.5% Exit Enterprise Value / EBITDA 10.6x Perpetuity Value at End of Year 5 119,90,677 Terminal Value at End of Year 5 127,17,947

Present Value of Perpetuity (@ 11.8% WACC) 68,93,287 Present Value of Terminal Value (@ 11.8% WACC) 73,11,386 (+) Present Value of Free Cash Flows (@ 11.8% WACC) 31,68,498 (+) Present Value of Free Cash Flows (@ 11.8% WACC) 31,68,498 (=) Current Enterprise Value (=) Current Enterprise Value

Short Term Debt 7,45,880 Short Term Debt 7,45,880 (+) Long Term Debt 14,41,750 (+) Long Term Debt 14,41,750 (-) Cash and Marketable Securities 6,18,580 (-) Cash and Marketable Securities 6,18,580 (-) Current Net Debt 15,69,050 (-) Current Net Debt 15,69,050 (-) Current Preferred and Minority Interest 35,390 (-) Current Preferred and Minority Interest 35,390 (=) Equity Value 84,57,345 (=) Equity Value 88,75,444

Shares outstanding 6,335 Shares outstanding 6,335 Estimated Value per Share (INR) 1,335.09 Estimated Value per Share (INR) 1,401.09 Current Price (INR) 1,126.55 Current Price (INR) 1,126.55

Estimated Upside 19% Estimated Upside 24% Bloomberg Analyst Recommendation

Average Price as Recommended by Analysts on 18% Buys Bloomberg based on BUY/SELL

Holds Buys 1,360 25% 57% Sells Holds 1,167 Sells 990

Firm Analyst Recommendation Target Price Date Antique Stock Broking Limited Nitin Tiwari Hold 1105 30-Jul-18

Axis Capital Limited Manikantha Garre Buy 1265 05-Oct-18 Batlivala & Karani Securities Bhavin Gandhi Outperform 1180 30-Jul-18 BNP Paribas Equity Research Amit Shah Buy 1415 10-Oct-18

BOB Capital Markets Rohit Ahuja Buy 1210 11-Oct-18 CIMB Avadhoot Sabnis Reduce 835 11-Oct-18 Credit Suisse Anantha Narayan Outperform 1320 30-Jul-18 Edelweiss Capital Jal Irani Buy 1457 08-Oct-18 Elara Securities India Pvt Ltd Gagan Dixit Accumulate 1285 29-Jul-18 Emkay Share & Stock Brokers Sabri Hazarika Buy 1300 30-Jul-18 Goldman Sachs Nikhil Bhandari Buy/Neutral 1460 09-Oct-18 HDFC Securities Nilesh Ramesh GhugeBuy 1270 29-Jul-18

HSBC Rakesh Sethia Buy 1300 30-Jul-18 ICICI Securities Vidyadhar Ginde Hold 1104 11-Oct-18 IDBI Capital Market Services Ltd Sudeep Anand Accumulate 1200 08-Oct-18

IDFC Securities Ltd Probal Sen Outperform 1370 28-Jul-18 IIFL Harsh Dole Buy 1285 21-Sep-18 India Infoline Prayesh Jain Buy 1600 30-Apr-18 J.P. Morgan Pinakin M Parekh Neutral 1100 12-Sep-18 Jefferies Somshankar Sinha Underperform 935 10-Oct-18 Kotak Securities Tarun Lakhotia Sell 985 06-Sep-18 KR Choksey Shares & Sec Pvt Ltd Dhavan Shah Buy 1442 03-Aug-18 Macquarie Aditya Suresh Outperform 1315 12-Oct-18

Morgan Stanley Mayank Maheshwari Overwt/Cautious 1230 09-Oct-18 Motilal Oswal Securities Ltd Swarnendu Bhushan Buy 1484 10-Oct-18 Narnolia Securities Vineeta Sharma Buy 1391 09-Oct-18

Nomura Anil Sharma Buy 1480 05-Oct-18 Spark Capital Advisors Vishnu Kumar Sell 934 30-Jul-18

**NOTE: Data taken from RIL’s Annual Report and Bloomberg, Every Price Data unless stated is in INR. Analysis done by Vikas Kumar Singh. Email: [email protected]