1 November 2020 2QFY21 Results Update | Sector: Oil & Gas
Reliance Industries
Estimate change CMP: INR2,054 TP: INR2,240 (+8%) Buy TP change Rating change Consumer biz cushions sharp fall in Oil and Gas biz Reliance Industries (RIL)’s 2QFY21 consolidated/standalone business EBITDA was Bloomberg RIL IN down 14%/44% YoY. This was weighed by sharp decline in refining Equity Shares (m) 6,339 throughput/margin and a weak Retail biz (hurt by the lockdown), but partly offset M.Cap.(INRb)/(USDb) 13524.8 / 180 by the growing Digital business. 52-Week Range (INR) 2369 / 867 RJio’s revenue/EBITDA growth slowed to 6%/7% QoQ (in-line) due to the 1, 6, 12 Rel. Per (%) -12/24/41 combination of 3% ARPU and subscriber growth each, coupled with 60bp margin 12M Avg Val (INR M) 29721 expansion to 42.6%. Reliance Retail’s net revenues were flat YoY at INR366b (in-line). This is Financials & Valuations (INR b) commendable despite the lockdown and lack of footfall at stores in 2QFY21. Y/E March FY21E FY22E FY23E Net Sales 5,438 7,191 7,845 During the quarter, RIL operated its refining and petrochemical units at >90% EBITDA 823 1,217 1,397 despite the much lower utilization rates of its Indian peers – the company is Net Profit 418 677 809 enjoying the benefits of its integrated Oils-to-Chemicals (O2C) business model. Adj. EPS (INR) 64.8 105.1 125.6 Despite a poor SG GRM benchmark, RIL reported a GRM of USD5.7/bbl. RIL EPS Gr. (%) -3.0 62.1 19.5 believes the domestic market for petroleum products is poised for recovery. We BV/Sh. (INR) 787.8 884.0 999.2 Ratios believe revival in domestic demand, particularly in the Agriculture, Auto, and Net D:E 0.1 -0.1 -0.2 FMCG sectors, would support RIL’s operating rates and margins further. RoE (%) 8.7 12.6 13.3 Using SOTP, we value the Refining and Petrochemical segment at EV/EBITDA of RoCE (%) 9.4 14.0 15.4 7.5x to arrive at a valuation of INR723/share for the standalone. We ascribe an Payout (%) 9.8 8.4 8.3 equity valuation of INR900/share to RJio and INR627/share to Reliance Retail, Valuations P/E (x) 31.9 19.7 16.4 factoring in the recent stake sale. Our higher EV/EBITDA multiple of 31x for retail P/BV (x) 2.6 2.3 2.1 and 18x for digital services underscore new growth opportunities in the Digital EV/EBITDA (x) 16.7 10.6 8.7 space, along with the rationalization of tariffs in RJio. Reiterate Buy, with Target EV/Sales (x) 2.5 1.8 1.6 Price of INR2,240/share. Div. Yield (%) 0.3 0.4 0.4
Shareholding pattern (%) 2QFY21 snapshot: Consol. and standalone EBITDA in line with estimates As On Sep-20 Jun-20 Sep-19 Standalone EBITDA came in ~44% YoY lower at INR76.5b (in line with Promoter 49.1 49.2 48.9 estimates) due to lower GRM (at USD5.7/bbl; -40% YoY) and lower refining DII 13.0 13.5 14.2 throughput (15.3mmt; -8% YoY). PBT stood at INR47.6b (-61% YoY / -43% FII 27.2 26.6 25.6 QoQ). Reported PAT stood at INR65.5b (-33% YoY and -30% QoQ), higher Others 10.6 10.8 11.4 than PBT on account of tax write back. FII Includes depository receipts Consol. EBITDA was in line with estimates at INR189.5b (-14% YoY and +12%
QoQ), with PBT of INR104.8b (-30% YoY and -20% QoQ). Reported PAT stood at INR95.7b (-16% YoY and -28% QoQ), higher than PBT on account of tax write back in 2QFY21.
RJio – growth momentum slows Subscriber growth slowed to 7.3m (from 10.8m in 1QFY21). On the other hand, ARPU improved by 3%, benefiting from a tariff increase, driving 6% EBITDA growth, with 60bp margin expansion.
Swarnendu Bhushan- Research analyst ([email protected]) Aliasgar Shakir – Research analyst ([email protected]) Sarfraz Bhimani - Research Analyst ([email protected]) Investors1 November 2020are advised to refer through important disclosures made at the last page of the Research Report.1 Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Reliance Industries
Cumulative ARPU growth in the last four quarters has been moderate at 14%, against Bharti’s 27%, and average tariff hike at about 25%. Nevertheless, its venture into multiple digital services, along with scope for ARPU improvement, offers ample growth opportunity. We expect revenue growth of 31%/19% and EBITDA growth of 50%/42% over FY21/FY22E. This is on the back of 12%/7% subscriber/ARPU growth over FY20– 22E.
Reliance Retail – maintains strong performance in slowing economy Retail’s blended EBITDA fell 14% YoY to INR20b (11% beat), and margins stood at 5.5% (v/s 6.3% in 2QFY20). EBIT stood at INR15b (down 25% YoY). 85% of Reliance Retail’s stores are currently operational (higher than 50% operational stores in 1QFY21) – footfall was at ~75% of pre-COVID-19 levels in 2QFY21, with Sept’20 footfall at ~85%. Despite the tough economic environment, Reliance Retail added 125 net stores (total 232 new store launches / 107 store closures) in 2QFY21.
Refining – GRM at USD5.7/bbl (lowest ever) In 2Q, COVID-19 impacted economic activity and thus demand for petroleum products across the globe. To arrest the unprecedented demand destruction, OPEC+ announced production cuts, which aided the demand-supply balance in the markets, supporting crude prices in 2QFY21. Although, production discipline led to tight supply of various crude grades; thus, the AL-AH differential narrowed to USSD0.30/bbl during the quarter. SG GRM increased in 2Q primarily on account of improvement in gasoline cracks owing to driving season in the West. However, the lack of revival in air travel has led to ATF cracks tanking further, with gasoil cracks posting a fall (the lowest ever since 1Q03) due to the lack of demand in Europe and Asia. Refining throughput was in line with est. at 15.3mmt (-8% YoY and -8% QoQ). GRM came in marginally lower than est. at USD5.7/bbl v/s our est. of USD6/bbl (USD9.4 in 2QFY20 and USD6.3 in 1QFY21). Refining EBIT was down 64% YoY at INR17.5b, weighed by poor GRM. RIL’s GRM at USD5.7/bbl was at its lowest ever.
Petchem – margins revive QoQ on the back of demand Petchem volumes stood at 9.7mmt (+5% est.; -2% YoY and +9% QoQ). Segmental EBIT declined 35% YoY to INR48.4b on lower price realizations, weighed by COVID-19 demand destruction. However, with the lifting of lockdown in 2QFY21, the global Petchem industry experienced strong signs of economic revival, led by growth in Consumer Durables and FMCG. Demand was further supported by a) increased housing spends in the US and China toward home improvements and b) revival in the Auto sector due to a shift in mobility preferences. This further led to consistent improvement in petchem cracks throughout the quarter sequentially. Thus, implied petchem margins were better than est. at USD82.6/mt v/s our est. of USD60 (-36% YoY and +26% QoQ). However, high China PTA and PX inventories kept prices and margins in check.
1 November 2020 2 Reliance Industries
Valuation and view Conso. Sep’20 debt stands at INR2,793b and cash & equivalent at INR1,857b. The company has received INR302.1b in 3QFY20’td and considering balance commitments of INR735.9b, ceteris paribus, the company stands net cash at INR102b. Jio Platforms Ltd – RJio’s holding company is keen to replicate its success in Wireless in other business streams. With aggressive plans and product launches in place, Jio Platforms is creating multiple monetization opportunities in the Digital space. Thus, we assign an EV/EBITDA multiple of 18x on Sep’22E EBITDA to arrive at TP of INR1,354 (INR1,125 earlier), factoring in the recent 34% stake sale. Thus, RJio’s value in RIL share comes to INR900/share (for its 66% stake). The higher multiple captures digital revenue opportunity, potential tariff hikes, and opportunity in the Low-cost Device market, among others, not built into our estimates. We value Reliance Retail’s core business at 31x Sep’22E EV/EBITDA and petro- retail/connectivity at Sept’22E 4x EV/EBITDA to arrive at Enterprise Value of INR4.4t and Target Price of INR683. Reliance Retail’s value in RIL share comes to INR627 (for its 92% stake). Our premium valuation underscores Reliance Retail’s aggressive footprint addition and the recent JioMart-led online opportunity, which could offer huge growth potential over time. RIL further plans to streamline its O2C Integration business and focus on expanding its Fuel Marketing business. Factoring in the current poor refining margin environment, we have revised down our 3Q/4QFY21 GRM estimates by USD1/bbl to USD7/bbl. However, the huge beat at the PAT level in 2Q makes the cut insignificant. As per our calculation, with every 10% change in petchem margins or refining GRM, EBITDA sensitivity stands at 5–6% on standalone and 3% on consolidated basis. Currently, chemical conversion stands at 24% for RIL. In FY20, its EBITDA from Refining stood at USD6.6/bbl v/s ~USD15.6/bbl from Petrochemical. According to our estimate, a 10% rise in chemical production from the current slate and EBITDA improvement at the refinery-cum-petrochemical complex could be as high as USD476m or 6%/3% of standalone/consol. FY22E EBITDA. Using SOTP, we value the Refining and Petrochemical segment at 7.5x to arrive at a valuation of INR713/share for standalone. We ascribe an equity valuation of INR900/share to RJio and INR627/share to Reliance Retail. Reiterate Buy, with Target Price of INR2,240/share.
1 November 2020 3 Reliance Industries
Exhibit 1: RIL SoTP valuation (INR/share) Equity value Standalone 7.5x Sep'22 EBITDA 31x and 18x Sep'22 EBITDA
900 58
627 2,240 63 394 314 Refining Petchem E&P Reliance RJio Net debt / Target price Retail (cash)
Consolidated - Quarterly Earning Model (INR B) Y/E March FY20 FY21 FY20 FY21E FY21 Var v/s 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2QE Est. (%) Net Sales 1,570 1,493 1,532 1,365 883 1,112 1,543 1,900 5,959 5,438 1,138 0 YoY Change (%) 21.9 4.2 -2.4 -1.6 -43.8 -25.5 0.7 39.2 4.7 -8.8 -23.8 EBITDA 213 222 226 220 169 189 233 232 881 823 183 0 Margins (%) 13.6 14.8 14.8 16.1 19.1 17.0 15.1 12.2 14.8 15.1 16.0 Depreciation 50 53 55 63 63 66 66 67 222 262 68 -3% Interest 51 55 54 61 67 61 42 36 220 207 69 -12% Other Income 31 36 34 39 44 42 34 46 140 166 49 -13% PBT before EO expense 143 150 151 135 82 105 160 175 579 522 94 12% Extra-Ord expense 0 0 2 43 -50 0 0 0 44 -50 0 PBT 143 150 149 93 132 105 160 175 535 571 94 12% Tax 42 37 31 27 3 0 37 42 137 81 22 -88% Rate (%) 29.5 24.7 20.9 28.9 2.0 -0.1 23.4 23.8 25.7 14.3 24.0 Minority Interest & Profit/Loss of Asso. Cos. -0.3 -0.5 -0.6 0.3 -3.1 9.3 12.6 15.2 -1.1 34.0 -3 Reported PAT 101 114 118 65 132 96 110 118 399 456 74 28% Adj PAT 101 114 120 96 84 96 110 118 431 418 74 28% YoY Change (%) 6.9 18.9 15.5 -8.1 -17.5 -15.7 -8.5 23.6 8.1 -3.0 -34.4 Margins (%) 6.5 7.6 7.8 7.0 9.5 8.6 7.1 6.2 7.2 7.7 6.5 Key assumptions
Refining throughput (mmt) 17.5 16.7 18.1 18.3 16.6 15.3 17.5 17.5 70.6 66.9 15.0 2% GRM (USD/bbl) 8.1 9.4 9.2 8.9 6.3 5.7 7.0 7.0 8.9 6.5 6.0 -4% Petchem sales (mmt) 8.7 9.9 9.9 9.8 8.9 9.7 10.0 10.0 38.3 38.6 9.2 5% Petchem (EBITDA/mt) 142 128 103 85 66 83 75 90 114 78 60 38% E: MOSL Estimates
RJio - Quarterly Earning Model (INR Billion)
Y/E March FY20 FY21 FY20 FY21 Variance 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2QFY21E (%) Net Revenue 117 131 140 148 166 175 185 188 543 713 173 0.9 YoY Change (%) NA 42.1 28.3 33.6 41.8 33.1 32.2 26.8 33.6 31.3 32.0 Total Expenditure 70 80 84 87 96 100 103 92 327 390 100 -0.2 EBITDA 47 51 56 62 70 75 82 96 216 323 73 2.4 Margins (%) 40.0 39.1 40.0 41.6 42.3 42.9 44.4 51.2 39.7 45.3 42.3 1 Depreciation 17 18 18 22 27 29 29 30 74 115 30 -3.7 Finance Cost 17 19 20 11 12 10 10 7 66 39 12 -13.0 Other Income 0 0 0 0 3 2 2 2 1 8 1 126.4 PBT 14 15 19 29 34 38 45 60 76 176 33 16.8 Tax 5 5 5 6 9 10 11 15 21 45 8 Rate (%) 35% 35% 27% 20% 25% 25% 25% 25% 27% 25% 25% PAT 9 10 14 23 25 28 33 45 56 131 24 16.8 Margins (%) 7.6 7.5 9.7 15.7 15.2 16.3 18.0 24.0 10.2 18.4 14 YoY Change (%) NA NA 0.6 1.8 NA NA 1.5 0.9 88% 136% NA
1 November 2020 4 Reliance Industries
Standalone Quarterly Earning Model (INR b) Y/E March FY20 FY21 FY20 FY21E FY21 Var v/s 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2QE Est. (%) Net Sales 882.6 871.4 863.8 741.8 474.6 562.9 784.7 785.7 3,359.8 2,607.9 642.8 -12% YoY Change (%) -3.2 -9.4 -13.7 -11.4 -46.2 -35.4 -9.2 5.9 -9.6 -22.4 -26.2 EBITDA 136.4 136.7 129.6 115.7 71.1 76.5 111.3 122.6 518.5 381.5 75.0 2% Margins (%) 15.5 15.7 15.0 15.6 15.0 13.6 14.2 15.6 15.4 14.6 11.7 Depreciation 21.8 23.2 25.5 26.9 21.8 22.3 24.7 30.0 97.3 98.8 24.7 -10% Interest 27.0 27.2 25.2 41.6 52.5 48.2 25.2 13.6 121.1 139.5 49.5 -3% Other Income 33.5 36.3 38.7 37.2 42.4 41.6 25.2 20.8 145.4 130.1 43.5 -4% PBT before EO expense 121.1 122.6 117.5 84.4 39.3 47.6 86.6 99.7 445.6 273.2 44.3 7% Extra-Ord expense 0.0 0.0 0.0 42.5 -44.2 0.0 0.0 0.0 42.5 -44.2 0.0 PBT 121.1 122.6 117.5 42.0 83.5 47.6 86.6 99.7 403.2 317.4 44.3 7% Tax 30.7 25.5 21.7 16.2 -9.5 -17.9 21.8 25.1 94.1 19.6 11.2 -185% Rate (%) 25.4 20.8 18.5 38.5 -11.4 -37.5 25.2 25.2 23.3 6.2 25.2 Reported PAT 90.4 97.0 95.9 25.8 92.9 65.5 64.8 74.6 309.0 297.9 33.2 97% Adj PAT 90.4 97.0 95.9 51.9 43.7 65.5 64.8 74.6 335.1 248.6 33.2 97% YoY Change (%) 2.4 9.5 7.4 -39.4 -51.6 -32.5 -32.4 43.8 -4.7 -25.8 -65.8 Margins (%) 10.2 11.1 11.1 7.0 9.2 11.6 8.3 9.5 10.0 9.5 5.2 Key Assumptions Refining throughput (mmt) 17.5 16.7 18.1 18.3 16.6 15.3 17.5 17.5 70.6 66.9 15.0 2% GRM (USD/bbl) 8.1 9.4 9.2 8.9 6.3 5.7 7.0 7.0 8.9 6.5 6.0 -4% Petchem EBITDA/tonne (USD/MT) 141.6 128.3 102.7 84.6 65.6 82.6 75.0 90.0 114.3 78.3 60.0 Petchem production (mmt) 8.7 9.9 9.9 9.8 8.9 9.7 10.0 10.0 38.3 38.6 9.2 E: MOFSL Estimates
Exhibit 2: RIL Consol summary of est change (INR b) Exhibit 3: RIL standalone summary of est change (INR b) RIL Consol FY21E FY22E RIL Standalone FY21E FY22E Revenue Revenue Old 5,636 7,541 Old 2,900 4,085 Actual/New 5,438 7,191 Actual/New 2,608 3,610 Change (%) -4% -5% Change (%) -10% -12% EBITDA EBITDA Old 808 1,193 Old 382 610 Actual/New 823 1,217 Actual/New 382 571 Change (%) 2% 2% Change (%) 0% -6% PAT PAT Old 383 645 Old 210 366 Actual/New 418 677 Actual/New 249 378 Change (%) 9% 5% Change (%) 18% 3% Source: Company, MOFSL Source: Company, MOFSL
Exhibit 4: RJio summary of est change (INR b) Exhibit 5: Reliance Retail summary of est change (INR b) Rjio FY21E FY22E Reliance Retail FY21E FY22E Revenue Revenue
Old 745 872 Old 1,530 1,961 Actual/New 713 846 Actual/New 1,535 1,983 Change (%) -4.3 -3 Change (%) 0 1 EBITDA EBITDA
Old 347 476 Old 74 129 Actual/New 323 458 Actual/New 64 132 Change (%) -7 -3.8 Change (%) -13.7 2.6 PAT PAT
Old 136 240 Old 48 89 Actual/New 131 227 Actual/New 40 91 Change (%) -3.1 -5.7 Change (%) -15.7 2.8 Source: Company, MOFSL Source: Company, MOFSL
1 November 2020 5 Reliance Industries
Reliance Jio Infocomm - Growth slows; building new growth engines
Subscriber adds slow RJio reported revenue/EBITDA growth of 6%/7% QoQ (in-line), led by 3% growth in each ARPU and subscribers, coupled with 60bp margin expansion to 42.6%. Net subscriber growth slowed to 7.3m (reaching 405.6m) from 8m in 2QFY20. Gross subscriber adds were healthy at 27.2m, while monthly churn increased to 1.69% (0.46% in 1QFY21), attributed to the lockdown. ARPU improved by 3% to INR145, benefiting from a tariff increase. Cumulative ARPU growth in the last four quarters (from 2QFY20 to 2QFY21) has been 14%, against Bharti’s 27%, and average tariff hike at about 25%. Total wireless data traffic was flat QoQ at 14.2b GB/month – attributed to a higher base, as nationwide lockdown in the previous quarter led to a sharp increase in data usage. On the other hand, data usage/subs increased by 6.6% QoQ to 12GB/month (Bharti was at 16.4GB/month). Voice traffic data grew by 5% to 932b minutes. However, MOU declined 2.2% to 755 minutes (Bharti was at ~1000 mins/month)
Transforming into a digital play With a total of INR1.5t raised by global investors and INR1.2t already received by 2QFY21 (except for the Google deal amount), Jio Platforms Ltd (RJio’s holding company) is sitting on a war chest. The company plans to use this to expand into multiple new digital products and services. It is building capabilities at scale toward: a) AI-based products – education platforms, computer analytics tools, speech and language recognition products, b) 5G technology, along with its technology partner Qualcomm, and c) applications for video conference – JioMeet, digital payment – JioUPI, connectivity – Jio STB, and Jio Fiber, among others. With aggressive plans and product launches in place, Jio Platforms is creating multiple monetization opportunities.
Subscriber growth opportunity; ARPU increase on the anvil RJio’s growth has moderated to the mid-single digits from double-digit quarterly growth seen about a year ago. This is primarily because it has achieved a strong scale of >400m subscribers. Incrementally, among 750–800m unique subscribers, the Smartphone category saw slow market share movement. Thus, its foray into the remaining 50% market of Low-cost Feature Phone Devices with Google may be pivotal to maintaining its subscriber growth momentum in India – characterized by low-cost devices and limited success in the subsidy model. Thus, as the growth momentum slows, and to leverage its strong base of >400m subscribers, RJio may look at ARPU as a tool to improve its monetization opportunities.
Aliasgar Shakir Multiple growth levers; adjusting TP to INR900 after stake sale [email protected] We expect revenue growth of 31%/19% and EBITDA growth of 50%/42% over FY21/FY22E, on the back of subscriber growth at a 12% CAGR for FY20–22E. We have not modeled in any material tariff hikes, big device launch in the Low-cost Feature Phone market, and other monetization opportunities that could significantly improve estimates. Thus, we assign an EV/EBITDA multiple of 18x on Sep’22E EBITDA to arrive at TP of INR1,354 (earlier INR1,125), factoring in the recent 34% stake sale; thus, RJio’s value in RIL share comes to INR900/share (for its 66% stake). The higher multiple captures a) digital revenue opportunity, b) expected gains from any potential tariff hikes, c) growing subscriber market share in the Low-cost Device market, and d) the possible rationalization of tax levies for the sector (not built into our estimates).
1 November 2020 6 Reliance Industries
RJio analyst meet takeaways
Digital ecosystem: AI-based speech and language recognition software providers, education platforms, fleet management companies, and various other start-ups form the digital ecosystem. RJio is building horizontal capabilities at scale, and following successful execution in India, these products may be leveraged outside of India. 5G: RJio is pioneering 5G in India in partnership with Qualcomm. JioMeet: JioMeet is secure, free, and without a time or participant barrier, unlike other platforms. RJio looks to extend the service to the enterprise market with JioMeet Pro; virtual classroom, marketplace, and other areas could be targeted via JioMeet. JioUPI: JioUPI and MyJio are widely used applications; they offer features such as online payments, bill payments, and QR code scanning. Jio STB: Jio STB has emerged as a one-stop destination, comprising gaming, education, media, and wellness applications. Jio Fiber: The Jio Fiber rollout continues strongly. 90% of subscribers are opting to continue their subscriptions post the 30-day free-of-cost service. RJio is bundling up all its popular OTTs for free, while offering the same speed, without fair usage price (FUP). JioPostPaid Plus – This features additions such as entertainment, inflight services, roaming services (US and the Middle East), and family plans. A good uptick has been seen in this service. Churn: RJio saw a moderately higher churn due to lockdown, reflected in lower net adds. Data traffic: Wireless data traffic was up 20% to 14.4 exabytes in 2QFY21. ARPU increased to INR145. InVITs: RJio has completed its transactions of tower and fiber InVITs. ADIA and PIF have each invested INR38b in the Fiber trust. Data usage: Per capita wireless usage was healthy at 12GB, and voice usage was at 776 minutes/month.
Exhibit 6: RJio SOTP EBITDA 488 EV/EBITDA (x) 18 EV 8,592 Debt 12 Equity Value 8,580 Value Per Share 1,353 RIL's Stake 66.48% RJio 's value in RIL 900
Source: Company, MOFSL
1 November 2020 7 Reliance Industries
Quarterly Earning Model (INR Billion) Y/E March FY20 FY21 FY20 FY21 Variance 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2QFY21E (%) Net Revenue 117 131 140 148 166 175 185 188 543 713 173 0.9 YoY Change (%) NA 42.1 28.3 33.6 41.8 33.1 32.2 26.8 33.6 31.3 32.0 Total Expenditure 70 80 84 87 96 100 103 92 327 390 100 -0.2 EBITDA 47 51 56 62 70 75 82 96 216 323 73 2.4 Margins (%) 40.0 39.1 40.0 41.6 42.3 42.9 44.4 51.2 39.7 45.3 42.3 1 Depreciation 17 18 18 22 27 29 29 30 74 115 30 -3.7 Finance Cost 17 19 20 11 12 10 10 7 66 39 12 -13.0 Other Income 0 0 0 0 3 2 2 2 1 8 1 126.4 PBT 14 15 19 29 34 38 45 60 76 176 33 16.8 Tax 5 5 5 6 9 10 11 15 21 45 8 Rate (%) 35% 35% 27% 20% 25% 25% 25% 25% 27% 25% 25% PAT 9 10 14 23 25 28 33 45 56 131 24 16.8 Margins (%) 7.6 7.5 9.7 15.7 15.2 16.3 18.0 24.0 10.2 18.4 14 YoY Change (%) NA NA 0.6 1.8 NA NA 1.5 0.9 88% 136% NA
RJio: QoQ financial performance (INR b) (INR b) 2QFY20 1QFY21 2QFY21 YoY% QoQ% 2QFY21E Var (%) Revenue from operations 131 166 175 33.1 5.6 173 0.9 Operating expenses 80 96 100 24.9 4.4 100 -0.2 EBITDA 51 70 75 46.0 7.1 73 2.4 EBITDA margin (%) 39.1 42.3 42.9 379bps 62bps 42.3 62bps Depreciation and amortization 18 27 29 61.7 4.9 30 -3.7 EBIT 34 43 46 37.7 8.6 43 6.5 EBIT margin (%) 25.6 25.8 26.5 88bps 73bps 25.1 140bps Finance Costs 19 12 10 -45.4 -12.5 12 -13.0 Other income 0 3 2 629.6 -28.6 1 126.4 Profit before Tax 15 34 38 150.5 12.8 33 16.8 Tax 5 9 10 81.9 12.7 8 16.7 Tax rate (%) 34.9 25.3 25.3 -955bps -2bps 25.3 -2bps Profit after Tax 10 25 28 187.3 12.9 24 16.8 Adjusted Profit after Tax 10 25 28 187.3 12.9 24 16.8
Source: MOFSL, Company
RJio: KPI comparison Key Operating Metrics 2QFY20 1QFY21 2QFY21 YoY% QoQ% 2QFY21E Var (%) Subscriber base (m) 355.2 398.3 405.6 14.2 1.8 408.8 -0.8 Net subs adds 23.9 10.8 7.3 -69.5 -32.4 10.5 -30.5 Gross sub adds 31.8 15.1 27.2 -14.4 80.1
Churn per mth (%) 0.7% 0.5% 1.7% 95bps 123bps
ARPU (INR/sub/month) 128 140 145 13.7 3.3 143 1.3 Total wireless Data traffic (cr GB) 1,202 1,420 1,420 18.1 0.0 1,524 -6.8 Wireless Data traffic per sub (GB/mth) 11.7 12.0 11.8 0.9 -2.3 12.6 -6.5 Voice on Network (b min) 813 891 932 14.7 4.6 914 2.0 Voice consumption per sub (min/mth) 789 756 773 -2.0 2.2 755 2.5
1 November 2020 8 Reliance Industries
Exhibit 7: RJio net subscriber adds (m) Exhibit 8: RJio EBITDA margins steady at 43% Net subs adds (m) Gross subs adds (m) Revenue (INR b) EBITDA margins (%) 42.9 42.0 40.0 40.0 41.6 42.3 37.1 38.2 37.8 38.8 38.7 37.2 39.0 39.1 33.2 34.2 30.5 32.9 31.8 27.8 27.9 27.2 23.9 23.5 15.1
15.2 21.5 26.5 28.7 37.0 27.8 26.6 24.6 23.9 14.8 17.5 10.8 7.3 61 69 71 81 92 109 111 117 131 140 148 166 175
1QFY20 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 2QFY18 Source: MOFSL, Company Source: MOFSL, Company
Exhibit 9: RJio voice traffic up 5% Exhibit 10: RJio data traffic comes in flat
Voice traffic (b min) QoQ growth (%) Data traffic (b GB) QoQ growth (%) 27 27 20 21 19 19 20 14 17 12 14 14 11 10 6 11 0 0 9 6 5 3 2 2
246 311 372 449 534 634 724 786 813 826 876 891 932 3.8 4.3 5.0 6.4 7.7 8.6 9.6 10.9 12.0 12.1 12.8 14.2 14.2
4QFY18 2QFY18 3QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
4QFY20 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 1QFY21 2QFY21 2QFY18 Source: MOFSL, Company Source: MOFSL, Company
Exhibit 11: ARPU reaches INR145, marginally above last quarter
Subscribers (m) ARPU (INR)
156 154 137 135 140 145 132 130 126 122 128 128 131
139 160 187 215 252 280 307 331 355 370 388 398 406
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 2QFY18 Source: MOFSL, Company
Exhibit 12: Financial snapshot of Jio Platforms (INR m) (INR m) 1QFY21 2QFY21 Gross Revenue 202,770 217,080 Operating Revenue 172,540 184,960 EBITDA 73,320 79,710 EBITDA Margin 42.5% 43.1% D&A 27,760 29,100 EBIT 45,560 50,610 Finance Cost 11,700 10,240 PBT 33,860 40,370 Tax 8,660 10,170 Tax rate 26% 25% PAT 25,200 30,200
Source: MOFSL, Company
1 November 2020 9 Reliance Industries
Exhibit 13: Financial snapshot of other digital businesses (INR m) (INR m) 1QFY21 2QFY21 Operating Revenue 34,440 42,270 as % of RJPL 20% 23% EBITDA 3,270 4,670 as % of RJPL 4% 6% EBITDA Margin 9% 11% D&A 380 390 EBIT 2,890 4,280 Finance Cost 20 20 Less intersegment (2,760) (1,970) PBT 110 2,290 Tax 110 530 Tax rate 100% 23% PAT - 1,760 as % of RJPL 0% 6%
Source: MOFSL, Company
Exhibit 14: Jio: Summary of estimate change FY21E FY22E Revenue (INR b) Old 745 872 Actual/New 713 846 Change (%) -4.3 -3.0 EBITDA (INR b) Old 347 476 Actual/New 323 458 Change (%) -7.0 -3.8 EBITDA margin (%) Old 46.6 54.6 Actual/New 45.3 54.1 Change (bp) -131bps -46bps Net Profit (INR b) Old 136 240 Actual/New 131 227 Change (%) -3.1 -5.7 EPS (INR) Old 3.0 5.3 Actual/New 2.9 5.0 Change (%) -3.1 -5.7 MoU (min) Old 793 793 Actual/New 793 793 Change (%) 0.0 0.0 ARPU (INR) Old 148 155 Actual/New 142 149 Change (%) -3.6 -3.6 Subs (m) Old 454 484 Actual/New 448 496 Change (%) -1.3 2.5
1 November 2020 10 Reliance Industries
Exhibit 15: RJio revenue and EBITDA margin to expand
Revenue (INR b) EBITDA margin (%) 54.1 54.8 45.3 37.1 39.7 33.4
947 846 713 543 407 202
FY18 FY19 FY20 FY21E FY22E FY23E
Source: MOFSL, Company
Exhibit 16: Price hike benefit to be fully reflected in FY21 Exhibit 17: FCF to turn positive in FY21 (INR b)
Subs (m) ARPU (INR) 157 212 144 142 149 137 130 159
-163
187 307 388 448 496 510 -322 -372 -342
FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E Source: MOFSL, Company Source: MOFSL, Company
Exhibit 18: RJio return ratios to rise (%) Exhibit 19: RJio net debt to EBITDA to decline (x)
RoE (%) RoCE (%) RoIC (%) 21.1 Net debt / EBITDA
12.0
9.0 9.2
6.0 1.7 0.0 0.4 -0.1 3.0
0.0 FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E
Source: Company, MOFSL Source: Company, MOFSL
1 November 2020 11 Reliance Industries
Reliance Retail – Retail shines despite lockdowns
Operational performance Reliance Retail’s net revenues came flat YoY (in-line) at INR366b. This was commendable despite the lockdown and the lack of footfall at stores in 2QFY21. 85% of Reliance Retail’s stores are currently operational (higher than 50% in 1QFY21). On the other hand, footfall in 2QFY21 was at ~75% of pre-COVID-19 levels, with Sept’20 footfall at ~85%. Retail’s blended EBITDA fell 14% YoY to INR20b (11% beat), and margins stood at 5.5% (v/s 6.3% in 2QFY20). EBIT was down 25% YoY to INR15b. Despite the tough economic environment, Reliance Retail added 125 net stores (total 232 new store launches / 107 store closures) in 2QFY21. The total store count stands at 11,931 stores; total area under operation increased by 1m sq. ft. to 29.7mn sq. ft.
Segmental performance Consumer Electronics: Revenue for Consumer Electronics grew 2x QoQ despite lower footfall, with strong demand in laptops; productivity device sales doubling; and High-end TVs, Air Care, and Appliances delivering strong growth. Fashion & Lifestyle: Revenues grew 3x QoQ as more stores were allowed to resume operations during the quarter. In Apparel and Footwear, conversions and bill values move up to record highs. 100% of Trends stores were omni- enabled. AJIO scaled to new highs with 4x growth in orders from pre-COVID levels. AJIO’s quarterly revenue run-rate is now equivalent to its full revenue from last year. Grocery: Grocery stores continued to see lower footfall, but this was offset by higher bill values. JioMart Kirana partnerships were extended to 20 cities in 2Q, with a 4x increase reported in orders over 1QFY21. The Staples and Processed Foods categories continued to drive growth, with Home and Personal Care (HPC) delivering a buoyant performance this quarter.
JioMart – pushing itself to the last mile In Dec’19, Reliance Retail announced the launch of JioMart. It was conceptualized with the objective of connecting nearly 30m neighboring kirana stores to the online platform to enable the ordering and delivery of a daily consumption basket (including daily staples, soaps, shampoos, and other household items). The strategic partnership between RJio and Facebook announced in April (via the latter acquiring 9.9% stake in JPL) is expected to further strengthen Reliance’s retail arm. Reliance is currently investing heavily in JioMart to strengthen its logistics and supply chain and enhance customer satisfaction, as well as introduce new products. As per media articles, JioMart received ~500k orders/day in July’20, with an average basket value of INR500.
Valuation and view Reliance Retail has maintained a strong performance amid a slowing economy and seen sharp rebound despite the slowdown in the Retail industry. RRVL has thus far raised INR377b by diluting 8.5% to global investors – some more deals may be expected. The recent deals have valued RRVL at INR676/share (a 17% premium to our valuations). We believe the whole amount from fund raise would flow through
1 November 2020 12 Reliance Industries
to RRVL and Reliance Retail’s presence would be further strengthened in the Physical and Online domains as well as through inorganic growth. We expect a revenue CAGR of 24% over FY20–23E, to reach INR2.5t by FY23E, and an EBITDA CAGR of 24%, to reach INR173b by FY23E. We value Reliance Retail on an SOTP basis, valuing its core business at 31x Sept’22 EV/EBITDA and petro- retail/connectivity at Sept’22 4x EV/EBITDA to arrive at Target Price of INR683. Reliance Retail’s value in RIL share comes to INR627 (for its 92% stake). Our premium valuation multiples capture the opportunity for rapid expansion in its Retail business and the aggressive rollout of the JioMart platform.
Exhibit 20: Quarterly performance (INR b) (INRb) 2QFY20 1QFY21 2QFY21 YoY% QoQ% 2QFY21E v/s est % Reported Revenue 412 316 411 -0.2 29.9 416 -1.3 Net Revenues 370 282 366 -1.1 29.7 375 -2.4 EBITDA - blended 23 11 20 -13.9 85.2 18 11.0 EBITDA Margin (%) - blended 6.3% 3.8% 5.5% -82bps 165bps 4.3% 114bps EBIT 20 7 15 -25.4 110.8 EBIT Margin (%) 4.9% 2.3% 3.7% -125bps 142bps Retail Area (in m sq. ft.) 24.5 28.7 29.7 21.2 3.5
Exhibit 21: Reliance Retail – revenue flat YoY Total Revenue (INR b) YoY growth 134% 116% 124% 121% 89% 74% 81% 52% 48% 27% 27% 4% 0% -17%
116 146 188 242 259 324 356 367 382 412 453 382 316 411
1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21
Source: Company, MOFSL
Exhibit 22: Reliance Retail – EBITDA down 14% YoY EBITDA (INRb) EBITDA margin (%) 7.5% 6.7% 6.0% 6.3% 5.9% 5.5% 5.3% 4.8% 5.3% 4.5% 3.8% 3.4% 3.0% 3.2%
4 4 6 11 12 14 17 19 20 23 27 26 11 20
1QFY19 4QFY20 1QFY18 2QFY18 3QFY18 4QFY18 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 1QFY21 2QFY21
Source: Company, MOFSL
Exhibit 23: Reliance Retail SOTP valuation (Sep’22E based) Valuation EBITDA multiple EV (INR b) Core EBITDA 138 31 4,339 Petro and Connectivity 37 4 164.3 Total 4,503 Less Net Debt 100 Equity Value 4,403 No of Shares (in b) 6.4 Target Price 683 RIL stake in RRVL 91.8% RRVL value in SOTP 627
1 November 2020 13 Reliance Industries
Reliance Retail analyst meet takeaways
Operational highlights 85% of stores were operational in 2Q (higher than 50% in 1QFY21). Footfall in 2QFY21 was at ~75% of pre-COVID-19 levels, with Sept’20 footfall at ~85%. Reliance Retail opened 232 new stores. Digital commerce is growing in scale, led by JioMart, AJIO, and Reliance Digital. Reliance Retail also acquired digital platforms Netmeds, Grab, NowFloats, C- Square, and Shopsense to build its digital capabilities and expertise. The firm raised INR377b from global investors, diluting 8.22% stake, to strengthen its presence in India. Consumer Electronics – Revenue for Consumer Electronics grew 2x QoQ despite lower footfall, with strong demand in laptops; productivity device sales doubling; and High-end TVs, Air Care, and Appliances delivering strong growth. All stores are digitally linked, with 88% deliveries executed from stores in <6 hours. Fashion and Lifestyle: This category was the most impacted as it comprises discretionary products. Increased conversions and bill values have offset the lower footfall. Fashion stores have scaled their digital commerce and omni- channel capabilities. Trends brand stores and footwear stores are 100% omni- enabled v/s 30% pre-COVID. AJio.com orders are up 4x from pre-COVID levels, implying a quarterly run-rate equivalent to last year’s annual nos. Grocery: Performance has been well ahead of the market, with the Home and Personal Care segments driving growth. JioMart continues to grow scale rapidly. The JioMart Kirana partnership program has been extended to 20 cities, and orders are up 4x, with uninterrupted supply.
Business outlook Reliance Retail would accelerate new store openings, particularly in Grocery and Fashion and Lifestyle. The festive season would be the key growth driver in the next quarter. The company looks to scale up digital commerce launches in Electronics, Fashion and Lifestyle, and Pharma on JioMart, and expand into new commerce avenues with the kirana partnerships. The company would focus on augmenting the supply chain and infra to support business expansion.
1 November 2020 14 Reliance Industries
Standalone business – demand revival to support utilization rates and margins in coming quarters
Exhibit 24: RIL’s segment-wise performance snapshot (standalone) FY20 FY21 2QFY21 (%) INR b 1Q 2Q 3Q 4Q 1Q 2Q YoY QoQ Segmental Revenues
Petchem 362 374 359 314 242 291 -22.1 20.5 Refining 766 765 782 678 398 499 -34.8 25.1 Oil & Gas 5 4 5 2 1 1 -83.9 -10.0 Others 3 5 5 5 3 3 -33.8 20.6 Total 1,136 1,148 1,152 999 644 794 -30.9 23.3 Segmental EBITDA
Petchem 86 89 72 60 44 60 -33.2 34.6 Refining 51 57 68 66 38 30 -47.0 -21.4 Oil & Gas 3 1 1 0 0 -2 -251.6 506.3 Total 139 147 141 126 82 88 -40.4 6.8 EBITDA Margin (%)
Petchem 23.7 23.9 20.2 19.1 18.3 20.5
Refining 6.6 7.4 8.7 9.7 9.6 6.0
Oil & Gas 54.7 28.6 11.8 26.9 -40.0 -269.4
Total 12.2 12.8 12.3 12.6 12.8 11.1
Segmental EBIT
Petchem 74 75 58 46 33 48 -35.5 45.5 Refining 44 49 59 57 27 18 -64.4 -35.7 Oil & Gas 1 1 1 0 0 0 -95.0 -112.0 Total 120 125 117 104 62 67 -46.3 9.0 EBIT Margin (%)
Petchem 20.4 20.0 16.1 14.6 13.8 16.6
Refining 5.8 6.4 7.5 8.4 6.8 3.5
Oil & Gas 23.9 13.4 10.3 5.0 -31.3 4.2
Total 10.6 10.9 10.2 10.4 9.6 8.5
1 November 2020 15 Reliance Industries
Refining & Marketing – weak margins and lower throughput partially offset by deep integration with petchem units In 2Q, global oil demand is estimated to have contracted by 16.4mnbopd due to lockdown and travel restrictions globally impacting gasoline, gasoil, and ATF cracks. Gasoline cracks averaged higher at USD2.8/bbl in 2Q (v/s USD0.4/bbl in 1QFY21), led by the easing of lockdown and a boost in personal mobility. ATF cracks averaged -USD0.7/bbl in 2QFY21 (v/s -USD0.1/bbl in 1QFY21). Diesel cracks fell for the fourth consecutive quarter, averaging at USD3.4/bbl (v/s USD4.6/bbl in 1QFY21) – the lowest in the last 18 years. Diesel was weighed by the collapse in ATF demand, causing an overhang in the diesel pool. Naphtha recorded QoQ improvement, averaging nil during the quarter (v/s - USD3.6/bbl in 1QFY21). PE/PP/PVC Delta declined -7%/-7%/-2% QoQ on sharp improvement in absolute Naphtha prices (~54% QoQ) v/s product prices, which improved (12–17%). Naphtha cracks improved QoQ, led by strong petchem demand and tighter supply. India oil product demand declined sharply by 25.8% YoY in 2Q, dragged down by ATF (-80.3%), MS (-35.9%), and HSD (-33.3%). RIL used flexibility in its refining configuration to swing significant ATF production to Diesel and other products as ATF demand was severely impacted by air travel restrictions. Also, the company was able to outperform the benchmark, supported by competitive crude sourcing and product yield optimization. RIL further maximized domestic sales to capture improved domestic demand – which grew 11% QoQ with the lifting of lockdown, despite seasonal slowdown due to strong monsoons. RIL launched niche grades in middle distillates last year. It has since been increasing its crude desalter capacity and has boosted the capacity of the DTA coker by 30%. It has also been attempting a product switch to better performing diesel cracks using certain feedstock (for instance, benefiting from poor fuel oil prices). A high level of integration with petrochemicals further enhanced performance and supported higher throughput during the quarter.
Outlook – demand growth to reduce inventory buildup, aiding margins April’20 saw peak demand decline of ~30mnbopd; however, the lifting of lockdown in economies globally has led to modest demand recovery. As per IEA’s forecast, oil demand growth is estimated at ~5.5mnbopd in 2021. Demand revival would absorb excess inventory and support margin recovery (which remained under pressure in 2QFY21 due to high inventory buildup). Middle distillate inventory is likely to reduce further with the commencement of winter demand. Travel and mobility demand is gradually increasing, with China already at pre- COVID levels. The US and India, on the other hand, are expected to normalize by early 2021. India is seeing a significant increase in vehicular traffic movement, with gradual revival in domestic air travel as well.
1 November 2020 16 Reliance Industries
REFINING: Deep integration with petrochemicals enhances performance GRM at USD5.7/bbl v/s benchmark GRM of -USD0.1/bbl
Exhibit 25: RIL’s premium over benchmark at USD5.8/bbl in 2QFY21 RIL's GRM premium over SG Brent less Dubai Arab L-H 2.9 2.9 2.9 2.9 3.2 3.1 2.6 2.2 2.3 2.3 2.2 1.4 2.3 1.5 - 1.8 1.5 0.4 0.3 3.0 2.5 2.6 2.3 2.5 1.6 1.5 1.3 0.9 0.5 0.9 0.7 (0.1) (0.2) (0.1) (0.1) (0.1)
6.5 5.0 4.1 5.1 5.5 3.7 4.3 4.0 4.5 3.4 4.6 5.0 4.6 2.9 7.6 7.7 7.2 5.8
1QFY172QFY173QFY174QFY171QFY182QFY183QFY184QFY181QFY192QFY193QFY194QFY191QFY202QFY203QFY204QFY201QFY212QFY21
Exhibit 26: Standalone refining EBIT declines 64% YoY and 36% QoQ 13.4 Refining EBIT (INRb) EBIT Margins (%) 11.4 11.5 9.8 10.8 11.0 9.5 8.4 7.5 7.5 6.8 6.4 6.3 5.6 5.9 5.8 6.4 3.5
66 59 61 63 64 65 61 56 52 52 49 40 44 49 59 57 27 18
1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21
Exhibit 27: 2QFY21 GRM at USD5.7/bbl – premium of USD5.8/bbl
11.5 11.5 11.9 12.0 11.6 10.1 10.8 11.0 10.5 9.5 8.8 9.4 9.2 8.9 3.7 8.2 8.1 4.1 5.1 5.5 4.3 4.0 6.3 6.5 5.0 4.5 3.4 2.9 5.7 4.6 5.0 4.6 7.6 7.7 8.3 7.3 7.0 7.2 5.1 6.7 6.4 6.4 6.0 6.1 6.5 5.8 5.0 4.2 3.2 3.5 1.6 1.2 (0.9) (0.1) Singapore GRM Premium / (Disc) RIL GRM
1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21
Exhibit 28: Refinery throughput down 8% YoY at 15.3mmt; utilization at 99% Refinery Thr' put (mmt) Utilization (%) 116 117 116 117 118 115 113 113 114 114 113 108 108 107 108 107 103 99
16.8 18.0 17.8 17.5 17.5 18.1 17.7 16.7 16.6 17.7 18.0 16.0 17.5 16.7 18.1 18.3 16.6 15.3
1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21
Source: Company, MOFSL
1 November 2020 17 Reliance Industries
Petrochem – strong pent-up demand drives market revival as economies open up Domestic demand was strong on a QoQ basis, with continued demand from the Essentials sector (Health and Hygiene). Agricultural demand was supported by a good monsoon season, while PET demand remained healthy in the Beverage and Pharma sectors. Spinning operations were up to ~81% by end-2QFY21 (improved due to winter) from 39% at the start of the quarter. Indian textile demand revived steadily with the availability of labor post the easing of lockdown. Thus, Indian crackers operated at ~95% during the quarter, outperforming global peers (84.3%). Capacity utilization improved on account of channel restocking ahead of the festive season. Operating rates in North America were much lower at ~78%, weighed by disruption from hurricanes/cyclones.
Outlook – demand to underpin better margins Polymers: Demand growth is likely to continue for the next two quarters as well, led by a strong demand outlook for the PVC and Non-Woven segments (Health and Hygiene sectors). Limited new supply would aid the current favorable margin environment (PVC margins above five-year average, with strong demand). Polyester: RIL expects supply glut to continue, led by huge capacity additions in China. However, revival in the downstream sector – with the lifting of lockdown restrictions, improving labor availability, and demand revival (with the onset of the festival season) – would support margins. The Textile market would remain firm, with demand seen for medical, hygiene, and technical textiles. In the current challenging operating environment, RIL has been able to maintain sustainable petchem production owing to a better product mix, by leveraging on its integration with its refining unit. RIL’s ability to maximize margins by taking advantage of feedstock flexibility (ethane cracking v/s naphtha in 2QFY21) led to better QoQ recovery.
E&P – project developments at KG D6 R cluster: Despite COVID-19-related lockdown and constraints (in terms of workforce and material transportation, etc.), the company plans to pre- commission the project in 3QFY21. Currently, all wells and subsea installations are complete; pre-commissioning work pertaining to the mobilization of critical resources from global locations, etc., is still pending. MJ development: The project is on track for the first offshore installation campaign in 4QFY21. Pre-commissioning is expected in 2QFY22. Satellite cluster development: Three out of five wells have been completed, with the drilling and completion campaign underway. It is on track for a second offshore installation campaign in Dec’20. Pre-commissioning is expected in 2QFY22.
1 November 2020 18 Reliance Industries
PETROCHEM: Improved sequential performance with rebound in demand EBIT down 36% YoY and up 46% QoQ; petchem EBIT share expands to 72%
Exhibit 29: Petchem EBIT down 36% YoY, but up 46% QoQ, with margin expanding YoY to 16.6% Petchem EBIT (INRb) EBIT Margins (%)
19.9 18.9 20.4 20.0 18.3 17.4 17.2 18.5 17.6 16.3 15.5 16.5 16.1 16.6 14.9 13.7 14.6 13.8
29 35 34 35 40 49 57 63 77 80 80 78 74 75 58 46 33 48
1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21
Exhibit 30: Petrochem volumes down 2% YoY and up 9% QoQ Petchem production (mmt)
9.7 9.9 9.9 9.8 9.7 7.9 8.4 9.2 9.2 9.4 9.4 8.7 8.9 6.1 6.4 6.2 6.2 6.9
1QFY17 3QFY17 1QFY18 3QFY18 1QFY19 3QFY19 1QFY20 3QFY20 1QFY21
Exhibit 31: Petchem share in 2QFY21 expands to 72% in standalone EBIT Petrochem Refining E&P Others 1 1 1 0 0 0 0 40 34 26 48 41 38 37 39 44 62 57 52 50 55 68 62 65 64
65 72 55 61 62 61 61 60 54 43 48 49 44 30 37 35 35 39
1QFY172QFY173QFY174QFY171QFY182QFY183QFY184QFY181QFY192QFY193QFY194QFY191QFY202QFY203QFY204QFY201QFY212QFY21
Exhibit 32: RIL production up 23% YoY and down 3% QoQ (RIL’s share, bcfe) 44.5 41.4 Shale gas vol, net (bcfe) 37.5 39.1 34.7 33.5 32.4 34.7 23.8 23.9 26.3 25.3 24.5 21.2 20.9
18.9 17.8 19.9
1QFY21 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 2QFY21
1 November 2020 19 Reliance Industries
Exhibit 33: RIL – Standalone FCF to be >INR1t over the next two years (INR b) INR bn Free Cash Flow 1,009
675 455 386 264 182 14
-84 -57
FY15 FY16 FY17 FY18 FY19 FY20
FY21E FY22E FY23E
Exhibit 34: RIL standalone – key assumptions Key Metrics FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Exchange Rate (INR/USD) 65.4 67.1 64.5 70.0 70.9 74.6 75.3 75.3 Refining
Capacity (mmt) 62.0 62.0 62.0 62.0 62.0 62.0 62.0 62.0 Production (mmt) 69.5 70.1 70.0 68.3 70.6 66.9 70.0 70.0 Capacity Utilization (%) 112% 113% 113% 110% 114% 108% 113% 113% GRM (USD/bbl)
Singapore GRM 7.5 5.8 7.3 4.9 3.2 1.7 5.0 6.0 Premium/(disc) 3.3 5.2 4.4 4.4 5.7 4.7 4.0 5.0 RIL GRM 10.8 11.0 11.6 9.3 8.9 6.5 9.0 11.0 Petchem
Production (mmt) 24.7 24.9 32.4 37.7 38.3 38.6 40.0 40.0 EBITDA/mt (USD) 88 102 122 141 114 78 99 99
Source: Company, MOFSL
Exhibit 35: RIL – segmental EBITDA breakup (INR b) Segmental EBITDA (INR b) FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Refining 265 284 277 228 241 161 231 309 Petchem 143 171 256 372 307 244 339 339 E&P 28 10 11 14 5 (7) (10) (10) Total 436 465 544 614 553 398 560 637 Segmental EBITDA share (%)
Refining 61 61 51 37 44 40 41 48 Petrochemicals 33 37 47 61 56 61 60 53 E&P 6 2 2 2 1 (2) (2) (2) Total 100 100 100 100 100 100 100 100
Source: Company, MOFSL
1 November 2020 20 Reliance Industries
Reliance Industries: Story in charts
Exhibit 36: RIL’s standalone earnings Exhibit 37: Return ratios
Source: Company, MOFSL Source: Company, MOFSL
Exhibit 38: FY21 refinery throughput snapshot
Source: Company, MOFSL
Exhibit 39: Expect refining EBITDA contribution to increase going forward
Source: Company, MOFSL
1 November 2020 21 Reliance Industries
Reliance Industries: Story in charts
Exhibit 40: Segmental EBITDA breakup (%) – E&P a dampener; refining and petchem outshine Exhibit 41: Expect E&P production to decline (mmscmd)
Source: Company, MOFSL Source: Company, MOFSL
Exhibit 42: RIL refining margins to improve in FY22 Exhibit 43: Expect petchem EBITDA to improve in FY22
Source: Company, MOFSL Source: Company, MOFSL
Exhibit 44: Dividend payout
Source: Company, MOFSL
1 November 2020 22 Reliance Industries
Reliance Jio Infocomm: Financials and valuations
Consolidated – Income Statement (INR b) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Total Income from Operations 0 0 202 407 543 713 846 947 Change (%) 0.0 -50.0 NA 101.8 33.6 31.3 18.6 11.9 Total Expenditure 0 0 134 256 327 390 388 428 % of Sales NA NA 66.6 62.9 60.3 54.7 45.9 45.2 EBITDA 0 0 67 151 216 323 458 518 Margin (%) NA NA 33.4 37.1 39.7 45.3 54.1 54.8 Depreciation 0 0 36 64 74 115 146 160 EBIT 0 0 32 87 142 207 312 359 Int. and Finance Charges 0 0 20 41 66 39 24 19 Other Income 0 0 0 0 1 8 16 13 PBT after EO Exp. 0 0 11 46 76 176 304 352 Total Tax 0 0 4 16 21 45 77 89 Tax Rate (%) 34.4 34.5 34.8 34.9 27.2 25.4 25.3 25.3 Reported PAT 0 0 7 30 56 131 227 263 Adjusted PAT 0 0 7 30 56 131 227 263 Change (%) -31.7 98.6 LP 310.0 87.7 136.2 72.6 16.1 Margin (%) NA NA 3.6 7.3 10.2 18.4 26.8 27.8
Consolidated – Balance Sheet (INR b) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Equity Share Capital 450 450 450 450 450 450 450 450 Total Reserves -78 259 579 -46 1,260 1,621 1,848 2,111 Net Worth 372 709 1,029 404 1,710 2,071 2,298 2,561 Total Loans 884 1,244 1,438 1,399 470 240 240 140 Capital Employed 1,257 1,953 2,468 1,803 2,179 2,311 2,538 2,701
Gross Block 12 14 1,595 1,444 1,772 2,274 2,773 2,965 Less: Accum. Deprn. 2 4 40 104 138 293 439 599 Net Fixed Assets 9 10 1,555 1,340 1,634 1,981 2,334 2,366 Capital WIP 1,061 1,780 700 346 213 0 0 0 Total Investments 8 9 10 13 25 11 11 11
Curr. Assets, Loans&Adv. 197 211 272 259 545 602 494 644 Account Receivables 0 0 9 7 16 39 46 52 Cash and Bank Balance 0 0 7 4 75 217 45 151 Loans and Advances 197 210 256 247 454 346 402 441 Curr. Liability & Prov. 19 56 70 155 238 284 301 320 Account Payables 0 0 31 33 47 48 48 53 Other Current Liabilities 19 55 34 121 190 228 237 249 Provisions 0 1 5 1 1 8 16 18 Net Current Assets 178 155 202 104 308 318 193 324 Appl. of Funds 1,257 1,953 2,468 1,803 2,179 2,311 2,538 2,701 E: MOFSL Estimates
1 November 2020 23 Reliance Industries
Reliance Jio Infocomm: Financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Basic (INR)
EPS 0.0 0.0 0.2 0.7 1.2 2.9 5.0 5.9 Cash EPS 0.0 0.0 1.0 2.1 2.9 5.5 8.3 9.4 BV/Share 8.3 15.7 22.9 9.0 38.0 46.0 51.1 56.9 DPS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Valuation (x)
FCF per share -4.9 -9.3 -7.2 -8.3 -7.6 3.5 -3.6 4.7 Return Ratios (%)
RoE 0.0 -0.1 0.8 4.1 5.3 7.0 10.4 10.8 RoCE 0.0 0.0 0.9 2.7 5.2 7.1 10.1 10.6 RoIC 7.7 -0.2 2.1 3.5 6.2 7.8 10.2 10.7 Working Capital Ratios
Fixed Asset Turnover (x) 0.0 0.0 0.0 0.1 0.3 0.3 0.3 0.3 Asset Turnover (x) 0.0 0.0 0.0 0.1 0.2 0.3 0.3 0.4 Debtor (Days) 274 913 3,650 17 7 20 20 20 Creditor (Days) 0 0 0 56 29 25 21 20 Leverage Ratio (x) Current Ratio 0.3 10.3 3.8 3.9 1.7 2.1 1.6 2.0 Interest Cover Ratio -14.0 -18.0 -47.2 1.5 2.1 5.3 13.0 18.9 Net Debt/Equity 0.8 2.4 1.7 1.4 3.4 0.0 0.1 0.0
(INR b) Y/E March FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY23E OP/(Loss) before Tax 0 0 11 46 76 176 304 352 Depreciation 0 0 36 64 74 115 146 160 Interest & Finance Charges 0 0 20 41 66 39 24 19 Direct Taxes Paid 0 0 -2 -10 -12 -45 -77 -89 (Inc)/Dec in WC -43 -34 -29 -75 -37 116 -46 -25 CF from Operations -44 -34 36 66 168 402 350 417 Others 0 0 0 0 -2 8 -16 -13 CF from Operating incl EO -44 -34 36 67 166 409 335 404 (Inc)/Dec in FA -176 -385 -358 -438 -508 -250 -498 -192 Free Cash Flow -220 -419 -322 -372 -342 159 -163 212 (Pur)/Sale of Investments 0 0 -1 0 -9 14 0 0 Others 0 0 0 0 -160 12 20 17 CF from Investments -177 -386 -359 -438 -677 -224 -478 -175 Issue of Eq/Pref.Shares 150 337 313 0 1,250 230 0 0 Inc/(Dec) in Debt 103 141 102 460 -538 -230 0 -100 Interest Paid -33 -58 -85 -92 -103 -39 -24 -19 Dividend Paid 0 0 0 0 0 0 0 0 Others 0 0 0 0 -20 0 0 0 CF from Fin. Activity 220 420 330 368 588 -39 -24 -119 Inc/Dec of Cash 0 0 7 -3 75 146 -168 110 Opening Balance 0 0 0 7 0 71 213 41 Closing Balance 0 0 7 4 75 217 45 151 Less Other Bank balance 0 0 0 4 4 4 4 4 Total Closing Balance 0 0 7 0 71 213 41 147
1 November 2020 24 Reliance Industries
Reliance Retail: Financials and valuations
Standalone – Income Statement (INR b) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Total Income from Operations 183 264 515 1019 1304 1364 1983 2458 Change (%) 13.8 44.2 94.6 98.1 27.9 4.6 45.4 23.9 Total Expenditure 174 253 491 960 1212 1300 1851 2284 % of Sales 95.0 95.6 95.4 94.2 93.0 95.3 93.3 92.9 EBITDA 9 12 24 59 91 64 132 173 Margin (%) 5.0 4.4 4.6 5.8 7.0 4.7 6.7 7.1 Depreciation 3 4 4 6 11 8 9 12 EBIT 6 8 19 53 80 56 124 161 Int. and Finance Charges 1 1 1 6 9 4 4 4 Other Income 0 0 0 1 3 2 2 2 PBT bef. EO Exp. 5 8 19 48 74 54 122 160 EO Items 0 0 0 0 0 0 0 0 PBT after EO Exp. 5 7 19 48 74 54 122 160 Total Tax 2 3 6 17 19 14 31 40 Tax Rate (%) 38.2 43.6 33.7 34.9 25.4 25.2 25.2 25.2 Reported PAT 3 4 12 31 55 40 91 119 Adjusted PAT 3 4 12 31 55 40 91 119 Change (%) 9.9 40.4 192.8 NA NA NA NA NA Margin (%) 1.6 1.6 2.4 3.1 4.2 3.0 4.6 4.9
Standalone – Balance Sheet Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Equity Share Capital 50 50 50 50 50 50 50 50 Eq. Share Warrants & App. Money 0 0 0 0 0 0 0 0 Preference Capital 0 0 0 0 0 0 0 0 Total Reserves 11 18 41 76 131 172 263 383 Net Worth 61 68 91 126 181 222 313 432 Total Loans 11 0 34 128 47 44 44 44 Deferred Tax Liabilities -10 -9 -6 0 0 0 0 0 Capital Employed 62 60 119 254 228 266 357 477
Gross Block 35 40 53 98 114 90 102 167 Less: Accum. Deprn. 14 17 21 26 33 41 50 62 Net Fixed Assets 20 23 32 72 82 49 52 105 Capital WIP 5 7 41 25 88 88 88 88 Total Investments 5 8 5 36 6 5 5 5 Curr. Assets, Loans&Adv. 64 70 156 211 180 364 522 663 Inventory 52 51 105 113 93 193 250 310 Account Receivables 2 7 22 43 25 80 103 128 Cash and Bank Balance 0 3 2 3 3 7 60 91 Loans and Advances 9 9 28 52 58 84 109 135 Curr. Liability & Prov. 33 48 116 90 128 240 310 385 Account Payables 28 39 82 41 57 156 201 249 Other Current Liabilities 5 9 33 48 71 84 109 135 Provisions 0 0 0 0 0 1 1 1 Net Current Assets 32 22 41 121 52 124 212 279 Appl. of Funds 62 60 119 254 228 266 357 477
1 November 2020 25 Reliance Industries
Reliance Retail: Financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Basic (INR) EPS 0.6 0.9 2.5 6.3 11.1 8.1 18.3 23.9 Cash EPS 1.3 1.6 3.4 7.5 13.3 9.7 20.0 26.4 BV/Share 12.3 13.7 18.2 25.2 36.3 44.4 62.7 86.7 DPS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Payout (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Return Ratios (%) RoE 5.3 6.6 15.7 29.0 36.1 20.1 34.2 32.1 RoCE 5.3 6.7 13.5 18.7 25.7 17.5 30.1 29.3 RoIC 7.0 9.6 22.8 26.6 37.5 28.2 50.1 48.7 Working Capital Ratios Fixed Asset Turnover (x) 5.3 6.6 9.7 10.4 11.4 15.2 19.5 14.8 Asset Turnover (x) 3.0 4.4 4.3 4.0 5.7 5.1 5.5 5.2 Inventory (Days) 105 70 74 40 26 52 46 46 Debtor (Days) 4 10 16 16 7 21 19 19 Creditor (Days) 55 54 58 15 16 42 37 37 Leverage Ratio (x) Current Ratio 2.0 1.5 1.4 2.3 1.4 1.5 1.7 1.7 Interest Cover Ratio 5.0 10.3 19.1 8.7 9.3 15.7 34.8 45.4 Net Debt/Equity 0.1 -0.2 0.3 0.7 0.2 0.1 -0.1 -0.1
Cash Flow Statement Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E OP/(Loss) before Tax 5 8 19 48 74 54 122 160 Depreciation 3 4 4 6 11 8 9 12 Interest & Finance Charges 1 1 1 -1 -2 4 4 4 Direct Taxes Paid -1 -1 -5 -10 -11 -14 -31 -40 (Inc)/Dec in WC 2 11 -15 -33 84 -68 -34 -36 CF from Operations 10 22 4 11 156 -17 69 99 Others 0 1 1 6 9 -2 -2 -2 CF from Operating incl EO 11 22 5 17 165 -18 67 97 (Inc)/Dec in FA -4 -8 -48 -47 -67 25 -12 -65 Free Cash Flow 6 14 -43 -30 98 7 55 32 (Pur)/Sale of Investments 0 -3 3 -7 18 0 0 0 Others 0 0 -4 0 2 2 2 2 CF from Investments -5 -11 -49 -54 -48 28 -10 -63 Issue of Shares 0 0 10 4 0 0 0 0 Inc/(Dec) in Debt -6 -8 34 94 -81 -2 0 0 Interest Paid -1 -1 -1 -6 -9 -4 -4 -4 Dividend Paid 0 0 0 0 0 0 0 0 Others 0 0 0 -23 -27 0 0 0 CF from Fin. Activity -7 -9 43 68 -117 -6 -4 -4 Inc/Dec of Cash -1 2 -1 32 0 3 54 31 Opening Balance 2 0 3 2 33 33 37 90 Closing Balance 0 3 2 3 3 7 60 91 Other Bank Balances 0 0 0 30 30 30 30 30 Net Closing balance 0 0 0 33 33 37 90 121
1 November 2020 26 Reliance Industries
Reliance Industries – Standalone Financials and valuations
Standalone - Income Statement (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Total Income from Operations 2,331.6 2,420.3 2,900.4 3,716.2 3,359.8 2,607.9 3,609.6 3,687.1 Change (%) -29.1 3.8 19.8 28.1 -9.6 -22.4 38.4 2.1 EBITDA 393.5 432.6 517.4 588.5 518.5 381.5 571.5 649.0 Margin (%) 16.9 17.9 17.8 15.8 15.4 14.6 15.8 17.6 Depreciation 85.9 84.7 95.8 105.6 97.3 98.8 106.8 110.2 EBIT 307.6 347.9 421.6 483.0 421.3 282.7 464.7 538.8 Int. and Finance Charges 25.6 27.2 46.6 97.5 121.1 139.5 54.1 30.1 Other Income 78.2 87.1 82.2 88.2 145.4 130.1 95.0 87.3 PBT bef. EO Exp. 360.2 407.8 457.3 473.7 445.6 273.2 505.5 595.9 EO Items 0.0 0.0 0.0 0.0 -42.5 44.2 0.0 0.0 PBT after EO Exp. 360.2 407.8 457.3 473.7 403.2 317.4 505.5 595.9 Total Tax 86.3 93.5 121.1 122.0 94.1 19.6 127.2 150.0 Tax Rate (%) 24.0 22.9 26.5 25.8 23.3 6.2 25.2 25.2 Reported PAT 273.8 314.3 336.1 351.6 309.0 297.9 378.3 445.9 Adjusted PAT 274.2 314.3 336.1 351.6 335.1 248.6 378.3 445.9 Change (%) 20.7 14.6 7.0 4.6 -4.7 -25.8 52.2 17.9 Margin (%) 11.8 13.0 11.6 9.5 10.0 9.5 10.5 12.1
Standalone - Balance Sheet (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY22E Equity Share Capital 32.4 32.5 63.4 63.4 63.4 64.5 64.5 64.5 Total Reserves 2,507.6 2,850.6 3,083.1 3,989.8 4,182.5 4,567.3 4,888.7 5,267.7 Net Worth 2,540.0 2,883.1 3,146.5 4,053.2 4,245.8 4,631.7 4,953.2 5,332.2 Total Loans 923.2 1,013.0 968.4 1,572.0 2,300.3 800.5 402.0 201.0 Deferred Tax Liabilities 237.5 247.7 279.3 473.2 505.6 505.6 505.6 505.6 Capital Employed 3,700.7 4,143.8 4,394.1 6,098.3 7,051.7 5,937.8 5,860.7 6,038.7 Gross Block 2,622.3 2,584.5 3,158.6 3,286.4 4,416.6 4,566.6 4,716.6 4,866.6 Less: Accum. Deprn. 1,146.9 1,053.2 1,149.0 1,254.6 1,351.8 1,450.7 1,557.4 1,667.6 Net Fixed Assets 1,475.4 1,531.3 2,009.6 2,031.9 3,064.7 3,115.9 3,159.1 3,198.9 Capital WIP 1,109.1 1,341.9 994.8 1,115.6 279.7 329.7 379.7 429.7 Total Investments 1,572.5 1,924.5 2,252.2 3,316.8 4,891.0 3,391.2 3,391.2 3,391.2 Curr. Assets, Loans&Adv. 659.8 669.8 918.6 1,293.2 1,453.7 1,148.2 1,764.2 1,913.3 Inventory 280.3 340.2 395.7 441.4 388.0 301.2 416.9 425.8 Account Receivables 35.0 54.7 104.6 121.1 74.8 58.1 80.4 82.1 Cash and Bank Balance 68.9 17.5 27.3 37.7 84.4 115.2 334.5 452.8 Loans and Advances 275.6 257.3 391.0 693.0 906.5 673.7 932.5 952.5 Curr. Liability & Prov. 1,116.1 1,323.6 1,781.2 1,659.1 2,637.5 2,047.2 2,833.5 2,894.4 Account Payables 1,093.7 1,289.8 1,749.9 1,626.5 2,612.6 2,027.9 2,806.9 2,867.2 Provisions 22.4 33.9 31.2 32.7 24.8 19.3 26.7 27.2 Net Current Assets -456.3 -653.9 -862.6 -365.9 -1,183.7 -899.0 -1,069.3 -981.1 Appl. of Funds 3,700.7 4,143.8 4,394.1 6,098.3 7,051.7 5,937.8 5,860.7 6,038.7 E: MOFSL Estimates
1 November 2020 27 Reliance Industries
Reliance Industries – Standalone financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Basic (INR) EPS 42.5 48.8 52.2 54.6 52.0 38.6 58.7 69.2 Cash EPS 55.9 61.9 67.0 70.9 67.1 53.9 75.3 86.3 BV/Share 412.8 468.6 511.4 658.8 690.1 752.8 805.1 866.6 Valuation (x) P/E 49.4 43.1 40.3 38.5 40.4 54.4 35.8 30.4 Cash P/E 37.6 33.9 31.3 29.6 31.3 39.0 27.9 24.3 P/BV 5.1 4.5 4.1 3.2 3.0 2.8 2.6 2.4 EV/Sales 6.2 6.0 5.0 4.1 4.7 5.5 3.8 3.6 EV/EBITDA 36.6 33.6 28.0 25.6 30.4 37.3 23.8 20.5 Dividend Yield (%) 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.4 FCF per share 40.9 28.2 70.6 -13.0 156.6 -8.9 104.7 59.9 Return Ratios (%) RoE 11.7 11.6 11.1 9.8 8.1 5.6 7.9 8.7 RoCE 8.9 9.1 9.2 8.7 7.1 6.5 7.8 8.6 RoIC 21.1 29.6 31.3 26.1 18.9 13.6 18.0 22.9 Working Capital Ratios Fixed Asset Turnover (x) 0.9 0.9 0.9 1.1 0.8 0.6 0.8 0.8 Asset Turnover (x) 0.6 0.6 0.7 0.6 0.5 0.4 0.6 0.6 Inventory (Days) 44 51 50 43 42 42 42 42 Debtor (Days) 5 8 13 12 8 8 8 8 Creditor (Days) 171 195 220 160 284 284 284 284 Leverage Ratio (x) Current Ratio 0.6 0.5 0.5 0.8 0.6 0.6 0.6 0.7 Interest Cover Ratio 12.0 12.8 9.1 5.0 3.5 2.0 8.6 17.9 Net Debt/Equity -0.3 -0.3 -0.4 -0.4 -0.6 -0.6 -0.7 -0.7
Standalone - Cash Flow Statement (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E OP/(Loss) before Tax 360.2 407.8 457.3 473.7 403.2 317.4 505.5 595.9 Depreciation 85.9 84.7 95.8 105.6 97.3 98.8 106.8 110.2 Interest & Finance Charges 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Direct Taxes Paid -86.3 -93.5 -121.1 -122.0 -94.1 -19.6 -127.2 -150.0 (Inc)/Dec in WC 560.6 146.2 218.5 -486.3 864.5 -253.9 389.6 30.2 CF from Operations 920.3 545.1 650.4 -29.1 1,270.8 142.7 874.6 586.3 CF from Operating incl EO 1,031.0 555.3 682.0 164.8 1,303.2 142.7 874.6 586.3 (Inc)/Dec in FA -767.2 -373.4 -227.1 -248.6 -294.2 -200.0 -200.0 -200.0 Free Cash Flow 263.8 181.9 455.0 -83.7 1,009.0 -57.3 674.6 386.3 (Pur)/Sale of Investments -446.8 -352.0 -327.7 -1,064.6 -1,574.2 1,499.8 0.0 0.0 CF from Investments -1,214.0 -725.4 -554.8 -1,313.2 -1,868.4 1,299.8 -200.0 -200.0 Inc/(Dec) in Debt 31.8 89.8 -44.7 603.6 728.3 -1,499.8 -398.5 -201.0 Interest Paid 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Dividend Paid -37.0 -39.2 -42.8 -46.4 -46.4 -44.7 -56.8 -67.0 CF from Fin. Activity 136.2 118.7 -117.5 1,158.7 611.9 -1,411.8 -455.3 -268.0 Inc/Dec of Cash -46.8 -51.4 9.8 10.4 46.8 30.8 219.3 118.3 Opening Balance 115.7 68.9 17.5 27.3 37.7 84.4 115.2 334.5 Closing Balance 68.9 17.5 27.3 37.7 84.4 115.2 334.5 452.8 E: MOFSL Estimates
1 November 2020 28 Reliance Industries
Reliance Industries – Consolidated financials and valuations
Consolidated - Income Statement (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E Total Income from Operations 2,740 3,054 3,917 5,692 5,959 5,438 7,191 7,845 Change (%) -27.0 11.5 28.3 45.3 4.7 -8.8 32.2 9.1 EBITDA 417 462 642 842 881 823 1,217 1,397 Margin (%) 15.2 15.1 16.4 14.8 14.8 15.1 16.9 17.8 Depreciation 116 116 167 209 222 262 301 322 EBIT 301 345 475 632 659 562 916 1,075 Int. and Finance Charges 37 38 81 165 220 207 106 77 Other Income 123 93 89 84 140 166 187 191 PBT bef. EO Exp. 387 400 483 551 579 522 998 1,189 EO Items 0 0 0 0 -44 50 0 0 PBT after EO Exp. 387 400 483 551 535 571 998 1,189 Total Tax 89 102 133 154 137 81 238 283 Tax Rate (%) 22.9 25.5 27.6 27.9 25.7 14.3 23.9 23.8 Minority Interest 1 -1 -11 -1 -1 34 82 96 Reported PAT 297 299 361 398 399 456 677 809 Adjusted PAT 297 299 361 398 431 418 677 809 Change (%) 26.2 0.5 20.7 10.4 8.1 -3.0 62.1 19.5 Margin (%) 10.9 9.8 9.2 7.0 7.2 7.7 9.4 10.3
Consolidated - Balance Sheet (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY22E Equity Share Capital 29 30 59 59 63 64 64 64 Total Reserves 2,286 2,608 2,876 3,812 4,470 5,013 5,633 6,376 Net Worth 2,316 2,637 2,935 3,871 4,533 5,077 5,698 6,440 Minority Interest 34 29 35 83 80 80 80 80 Total Loans 1,947 1,837 1,816 2,719 2,914 807 407 7 Deferred Tax Liabilities 205 212 245 499 541 541 541 541 Capital Employed 4,501 4,715 5,032 7,173 8,069 6,506 6,726 7,069 Gross Block 3,312 3,564 5,775 5,868 7,450 8,573 9,198 9,722 Less: Accum. Deprn. 1,506 1,628 1,795 2,004 2,226 2,488 2,789 3,110 Net Fixed Assets 1,807 1,936 3,981 3,864 5,224 6,085 6,409 6,612 Goodwill on Consolidation 43 49 58 120 103 103 103 103 Capital WIP 2,287 3,248 1,870 1,795 1,091 468 344 319 Total Investments 840 856 855 2,403 2,768 794 794 794 Curr. Assets, Loans&Adv. 1,014 978 1,348 1,843 2,474 2,328 3,404 3,961 Inventory 465 490 608 676 739 673 891 971 Account Receivables 45 82 176 301 197 179 237 258 Cash and Bank Balance 110 30 43 111 309 356 796 1,116 Loans and Advances 394 377 522 755 1,229 1,120 1,481 1,616 Curr. Liability & Prov. 1,489 2,353 3,081 2,851 3,590 3,272 4,326 4,720 Account Payables 603 766 1,069 1,083 968 882 1,166 1,272 Other Current Liabilities 856 1,546 1,971 1,721 2,581 2,352 3,110 3,393 Provisions 30 41 41 47 41 38 50 54 Net Current Assets -475 -1,375 -1,732 -1,009 -1,116 -944 -922 -758 Appl. of Funds 4,501 4,715 5,032 7,173 8,069 6,506 6,726 7,069 E: MOSL Estimates
1 November 2020 29 Reliance Industries
Reliance Industries – Consolidated financials and valuations
Ratios Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E EPS 46.2 46.4 56.0 61.8 66.8 64.8 105.1 125.6 Cash EPS 64.1 64.5 81.9 94.3 101.2 105.4 151.8 175.5 BV/Share 359.3 409.2 455.4 600.6 703.4 787.8 884.0 999.2 DPS 4.8 5.1 5.5 6.0 6.0 5.8 7.3 8.6 Payout (%) 12.4 13.1 11.9 11.6 11.6 9.8 8.4 8.3 Valuation (x) P/E 44.7 44.5 36.9 33.4 30.9 31.9 19.7 16.4 Cash P/E 32.2 32.0 25.2 21.9 20.4 19.6 13.6 11.8 P/BV 5.7 5.0 4.5 3.4 2.9 2.6 2.3 2.1 EV/Sales 5.5 4.9 3.9 2.8 2.7 2.5 1.8 1.6 EV/EBITDA 36.3 32.7 23.5 18.9 18.1 16.7 10.6 8.7 Dividend Yield (%) 0.2 0.2 0.3 0.3 0.3 0.3 0.4 0.4 FCF per share 7.0 1.7 1.8 -0.8 -22.1 0.0 0.0 0.0 Return Ratios (%) RoE 13.2 12.1 13.0 11.7 10.2 8.7 12.6 13.3 RoCE 8.0 7.5 8.8 9.1 8.5 9.4 14.0 15.4 RoIC 17.0 27.9 24.2 17.8 14.5 11.0 14.4 17.0 Working Capital Ratios Fixed Asset Turnover (x) 0.8 0.9 0.7 1.0 0.8 0.6 0.8 0.8 Asset Turnover (x) 0.6 0.6 0.8 0.8 0.7 0.8 1.1 1.1 Inventory (Days) 62 59 57 43 45 45 45 45 Debtor (Days) 6 10 16 19 12 12 12 12 Creditor (Days) 80 92 100 69 59 59 59 59 Leverage Ratio (x) Current Ratio 0.7 0.4 0.4 0.6 0.7 0.7 0.8 0.8 Interest Cover Ratio 8.2 9.0 5.9 3.8 3.0 2.7 8.6 13.9 Net Debt/Equity 0.8 0.7 0.6 0.7 0.6 0.1 -0.1 -0.2
Consolidated - Cash Flow Statement (INR Billion) Y/E March FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E PBT 387 400 494 552 536 571 998 1,189 Depreciation 116 116 167 209 222 262 301 322 Tax paid -86 -101 -98 -122 -84 -81 -238 -283 Change in deferred tax liability 0 0 0 0 0 0 0 0 Change in net working capital 78 155 185 -288 219 -127 419 156 Operating cash flow 381 496 715 423 981 591 1,397 1,287 Capex -466 -766 -730 -928 -756 -500 -500 -500 Change in investments 58 92 35 -19 141 1,974 0 0 Investing cash flows -362 -663 -683 -951 -757 1,474 -500 -500 Change in borrowings 130 215 199 865 356 -2,107 -400 -400 Issuance of equity 3 8 5 2 1 133 0 0 Dividend paid -73 -1 -39 -43 -46 -45 -57 -67 Financing cash flow -32 86 -20 559 -25 -2,019 -457 -467 Net change in cash -13 -81 12 31 198 46 440 320 Closing cash balance 110 30 43 111 309 356 796 1,116 E: MOSL Estimates
1 November 2020 30 Reliance Industries
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This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong. For U.S. Motilal Oswal Financial Services Limited (MOFSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOFSL , including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement. The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account. For Singapore In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore.As per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of "accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must immediately discontinue any use of this Report and inform MOCMSPL. Specific Disclosures 1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company. 2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company 3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months 4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report 5 Research Analyst has not served as director/officer/employee in the subject company 6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months 7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months 8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months 9 MOFSL has not received any compensation or other benefits from third party in connection with the research report 10 MOFSL has not engaged in market making activity for the subject company ********************************************************************************************************************************
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The associates of MOFSL may have: - financial interest in the subject company - actual/beneficial ownership of 1% or more securities in the subject company - received compensation/other benefits from the subject company in the past 12 months - other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report. - acted as a manager or co-manager of public offering of securities of the subject company in past 12 months - be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) - received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services. The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not considered in above disclosures. Analyst Certification The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. Terms & Conditions: This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report. Disclaimer: The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000. Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: [email protected], Contact No.:022-71881085. * MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
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