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25 June 2021 Company Update
Reliance Industries
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
AGM takeaways
Our ADD rating on RIL with a price target of INR 2,280 /sh is premised on (1)
recovery in the O2C businesses; (2) continued EBITDA growth in the digital
business, driven by improvement in ARPU, subscriber addition and newer
revenue streams; and (3) potential for further value unlocking in the digital and
retail businesses.
Oil to chemicals (O2C): At the AGM, the chairman announced a Capex of
INR 600bn over the next three years in the O2C business. This Capex will be
used to set up four giga factories: (1) solar photovoltaic giga factory, (2)
advanced energy storage giga factory, (3) electrolyser giga factory, and (4)
fuel cell giga factory. Towards the infrastructure requirement and materials
to support these factories, it plans to further invest INR 150bn in value chain,
partnerships, and future technologies, including upstream and downstream
industries. The company’s last major Capex cycle of INR 5,400bn towards
O2C and consumer business was from FY14 to FY19.
Saudi Aramco deal: RIL appointed the chairman of Saudi Aramco, H.E. Yasir
Al-Rumayyanto, to its Board as an independent director. This development
indicates a step forward for the RIL-Saudi Aramco deal. RIL’s chairman
indicated that the partnership should be formalised this year. The deal,
announced in FY19, valued RIL’s O2C business at an EV of USD 75bn. This
valuation should increase our SOTP for the stock by INR 285/sh, taking it to
INR 2,565.
Jio: (1) With Jio’s additional investment in its network during the year and on
additional spectrum at the recent spectrum auction, management is confident
of the network’s capacity to serve additional 200 mn subscribers. (2) Google
and Jio jointly developed the “JioPhone Next” smartphone, which should be
available from 10 Sept’21. With this lower-priced, fully-featured smartphone
supporting the entire suite of applications from both Google and Jio as well
as the android play store, Jio expects to successfully target the 300 mn 2G
phone users in India. (3) JioFiber has acquired more than 2mn new premises
in FY21 and has a cumulative base of 3mn active home and business users.
We estimate Jio’s EBITDA at INR 491bn for FY23E with an ARPU of INR 157.
We value its business at an EV of INR 7,143bn.
Reliance Retail (RR): The chairman indicated that RR is on a hyper growth
trajectory and should grow at least 3x in the next 3-5 years. We expect RR’s
FY23 EBITDA at INR 142bn and value it at an EV of INR 3,802bn.
Change in estimates: We have cut our FY22/23 EPS estimates by 10.0/2.1% to
INR 79.6/102.2. This is mainly on account of reduction in the GRM and
petchem margin assumptions, offset by a higher crude oil price assumption
and incorporation of AR21 in the financials.
Valuation: We use EV/EBITDA to value downstream at March-23E EV/e,
retail on peer benchmarked EV/e and E&P, Jio on DCF. The stock is currently
trading at 10.9x March-23E EV/EBITDA and 21.0x March-23E EPS. Maintain
ADD.
ADD
CMP (as on 24 Jun 2021) INR 2,154
Target Price INR 2,280
NIFTY 15,790
KEY
CHANGES OLD NEW
Rating ADD ADD
Price Target INR 2,285 INR 2,280
EPS % FY22E FY23E
-10.0% -2.1%
KEY STOCK DATA
Bloomberg code RIL IN
No. of Shares (mn) 6,339
MCap (INR bn) / ($ mn) 13,652/183,455
6m avg traded value (INR mn) 21,774
52 Week high / low INR 2,375/1,696
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) 5.2 8.0 24.6
Relative (%) (2.0) (4.2) (26.5)
SHAREHOLDING PATTERN (%)
Dec-20 Mar-21
Promoters 50.54 50.58
FIs & Local MFs 13.11 12.83
FPIs 25.16 25.66
Public & Others 11.19 10.93
Pledged Shares 0.0 0.0
Source : BSE
Harshad Katkar
+91-22-6171-7319
Nilesh Ghuge
+91-22-6171-7342
Rachael Alva
rachael.alva @hdfcsec.com
+91-22-6171-7330
Rutvi Chokshi
+91-22-6171-7356
Page | 2
Reliance Industries: Company Update
Key metrics
Y/E Mar Unit FY18 FY19 FY20 FY21 FY22E FY23E FY24E
RIL (Consolidated)
Operating Assumptions
Throughput mmt 69.8 68.3 70.6 65.7 67.5 70.0 70.3
KG D6 sales volume mmscmd 5.3 3.2 1.7 1.1 6.7 15.7 23.6
O2C EBITDA per tonne of crude processed INR/ton 773 868 1,021 1,220 1,006 746 1,052
Financial Summary (Consol)
Revenue INR bn 3,917 5,692 5,975 4,669 7,526 8,902 9,980
EBITDA INR bn 642 842 890 807 1,111 1,331 1,551
PAT INR bn 361 396 427 437 538 691 827
EPS INR/sh 60.9 66.8 67.4 67.8 79.6 102.2 122.4
RoE % 12.9 11.6 10.2 7.6 7.2 8.4 9.3
Jio
Operating Assumptions
Subscribers mn 187 307 388 426 460 490 510
ARPU INR 144 137 130 143 149 157 179
Financials Summary
Revenue INR bn 159 346 485 653 802 924 1,127
EBITDA INR bn 67 151 216 309 438 491 603
PAT INR bn 7 30 57 120 201 239 321
Source: Company, HSIE Research
Change in estimates
FY22E FY23E
Old New % Ch Old New % Ch
Crude oil (USD/bbl) 50.7 61.0 20.4 49.9 63.0 26.3
Exchange rate (INR/USD) 75.0 75.0 - 77.0 77.0 -
O2C business
EBITDA per tonne of crude
processed (Rs/tonne) NA 1,052 NA NA 1,212 NA
EBITDA (INR bn) 565 496 (12.2) 620 619 (0.0)
EPS (INR/share) 54.1 44.4 (17.9) 64.2 61.1 (4.8)
Jio
Revenue (INR bn) 802 802 - 924 924 -
EBITDA (INR bn) 438 438 - 491 491 -
APAT (INR bn) 201 201 - 239 239 -
EPS (INR/share) 4.5 4.5 - 5.3 5.3 -
ARPU 149.4 149.4 - 157.0 157.0 -
Closing Subs (Mn) 460 460 - 490 490 -
Consolidated business
EBITDA (INR bn) 1,169 1,111 (4.9) 1,320 1,331 0.8
EPS (INR/share) 88.4 79.6 (10.0) 104.4 102.2 (2.1)
Source: Company, HSIE Research
SOTP valuation Business EV (INR bn) Value per share Valuation basis
Petrochemicals 2,336 368 EV/EBITDA on Mar 23E
Refining 1,482 233 EV/EBITDA on Mar 23E
E & P 280 44 NPV
Retail 3,234 509 EV/EBITDA on Mar 23E
Telecom 4,790 755 NPV
Investments/CWIP 1,410 222
Consol. net Debt/creditors for
Capex/deferred spectrum liabilities 947 149 As on Mar-23
Value per share 14,478 2,280
Source: Company, HSIE Research
Page | 3
Reliance Industries: Company Update
Financials Consolidated Income Statement INR bn FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Revenues 3,054 3,917 5,692 5,975 4,669 7,526 8,902 9,980
Growth % 11.5 28.3 45.3 5.0 (21.9) 61.2 18.3 12.1
Raw Material 2,123 2,675 3,945 4,052 2,927 5,175 6,148 6,826
Employee Cost 84 95 125 141 148 152 178 194
Other Expenses 385 505 781 892 787 1,088 1,246 1,410
EBITDA 462 642 842 890 807 1,111 1,331 1,551
EBIDTA Margin (%) 15.1 16.4 14.8 14.9 17.3 14.8 14.9 15.5
EBITDA Growth % 10.8 38.9 31.2 5.8 (9.3) 37.6 19.8 16.5
Depreciation 116 167 209 222 266 279 305 331
EBIT 345 475 632 668 542 831 1,025 1,220
Other Income (Including EO Items) 94 99 84 87 220 206 215 228
Interest 38 81 165 220 212 230 209 197
PBT 401 494 551 535 549 808 1,031 1,251
Tax 102 133 154 137 17 192 248 303
RPAT before minority interest 299 360 397 398 532 616 783 948
Share of associates/Minority interest (0) 1 (1) (4) (41) (78) (93) (121)
RPAT after adjusting for Associates/Minority interest 299 361 396 394 491 538 691 827
EO (Loss) / Profit (Net Of Tax) - - - (34) 54 - - -
APAT 299 361 396 427 437 538 691 827
APAT Growth (%) (9.2) 20.6 9.7 8.0 2.2 23.2 28.4 19.7
AEPS 50.5 60.9 66.8 67.4 67.8 79.6 102.2 122.4
AEPS Growth % (9.2) 20.6 9.7 0.9 0.5 17.4 28.4 19.7
Consolidated Balance Sheet INR bn FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
SOURCES OF FUNDS
Share Capital 30 59 59 63 64 68 68 68
Reserves And Surplus 2,608 2,876 3,812 4,428 6,937 7,813 8,447 9,209
Total Equity 2,637 2,935 3,871 4,492 7,002 7,881 8,515 9,277
Minority Interest 29 35 83 122 993 1,042 1,094 1,149
Long-term Debt 1,521 1,442 2,075 1,976 1,637 1,884 1,810 1,720
Short-term Debt 445 746 800 1,387 881 811 773 732
Total Debt 1,966 2,188 2,875 3,363 2,518 2,695 2,583 2,452
Deferred Tax Liability 413 448 645 705 552 519 512 504
Long-term Provision 114 114 162 206 242 243 244 246
TOTAL SOURCES OF FUNDS 5,159 5,720 7,636 8,888 11,306 12,380 12,948 13,628
APPLICATION OF FUNDS
Net Block 1,936 3,981 3,864 5,224 5,310 5,454 5,718 5,806
Capital WIP 3,248 1,870 1,795 1,091 1,260 1,106 1,134 1,166
Goodwill on consolidation 49 58 120 103 102 102 102 102
LT Loans And Advances 27 27 55 217 25 20 18 17
Non-current investments 256 253 1,646 2,039 2,124 2,124 2,124 2,124
Non-current assets 83 87 223 374 650 670 691 713
Total Non-current Assets 5,600 6,275 7,702 9,048 9,471 9,476 9,787 9,929
Inventories 535 608 676 739 817 821 832 925
Debtors 82 176 301 197 190 204 232 262
Cash and Cash Equivalent 30 43 111 309 174 1,476 1,808 2,170
ST Loans And Advances 95 108 5 7 1 - - -
Other Current Assets 199 328 471 602 1,024 1,001 968 1,038
Current investments 528 576 710 729 1,524 1,774 1,924 2,074
Total Current Assets 1,468 1,838 2,274 2,583 3,730 5,275 5,765 6,469
Creditors 766 1,069 1,083 968 1,089 1,418 1,607 1,731
Other Current Liabilities & Provns 1,143 1,324 1,257 1,775 805 953 997 1,039
Total Current Liabilities 1,909 2,393 2,340 2,743 1,894 2,371 2,604 2,770
Net Current Assets (441) (555) (66) (160) 1,836 2,904 3,161 3,699
TOTAL APPLICATION OF FUNDS 5,159 5,720 7,636 8,888 11,306 12,380 12,948 13,628
Source: Company, HSIE Research
Page | 4
Reliance Industries: Company Update
Consolidated Cash Flow YE March (INR bn) FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Reported PBT 401 494 551 535 549 808 1,031 1,251
Non-operating & EO Items (95) (99) (85) (57) (315) (284) (308) (349)
Interest Expenses 38 81 165 220 212 230 209 197
Depreciation 116 167 209 222 266 279 305 331
Working Capital Change 6 127 (420) 292 (2,131) 234 76 (177)
Tax Paid 40 (99) 44 (77) (171) (225) (255) (310)
OPERATING CASH FLOW ( a ) 507 670 464 1,134 (1,589) 1,041 1,059 943
Capex (1,100) (843) (79) (861) (520) (269) (598) (451)
Free Cash Flow (FCF) (593) (173) 385 273 (2,110) 772 462 492
Investments 114 4 (1,394) (392) (85) - - -
Non-operating Income 94 99 84 87 220 206 215 228
Others 67 (3) (165) (313) (83) (15) (20) (21)
INVESTING CASH FLOW ( b ) (826) (743) (1,553) (1,480) (469) (78) (402) (244)
Debt Issuance/(Repaid) 306 222 687 488 (845) 176 (111) (131)
Interest Expenses (38) (81) (165) (220) (212) (230) (209) (197)
FCFE (325) (32) 908 541 (3,166) 719 141 164
Share Capital Issuance 0 30 0 4 1 3 - -
Dividend - (39) (43) (46) (39) (55) (55) (63)
Others (31) (46) 678 318 3,018 444 52 54
FINANCING CASH FLOW ( c ) 237 85 1,157 544 1,923 338 (324) (337)
NET CASH FLOW (a+b+c) (82) 12 68 198 (135) 1,302 333 362
EO Items, Others - - - - - - - -
Closing Cash & Equivalents 30 43 111 309 174 1,476 1,808 2,170
Key Ratios Ratios FY17 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PROFITABILITY %
EBITDA Margin 15.1 16.4 14.8 14.9 17.3 14.8 14.9 15.5
EBIT Margin 11.3 12.1 11.1 11.2 11.6 11.0 11.5 12.2
APAT Margin 9.8 9.2 7.0 7.2 9.4 7.2 7.8 8.3
RoE 11.8 12.9 11.6 10.2 7.6 7.2 8.4 9.3
RoIC 17.2 13.7 12.2 11.3 6.6 7.3 8.9 10.1
RoCE 6.8 7.7 7.7 7.2 6.4 6.0 6.7 7.3
EFFICIENCY
Tax Rate % 25.4 27.0 27.9 25.7 3.1 23.8 24.0 24.2
Fixed Asset Turnover (x) 0.9 0.8 1.0 0.9 0.6 0.9 1.0 1.1
Inventory (days) 64 57 43 45 64 40 34 34
Debtor (days) 10 16 19 12 15 10 10 10
Other Current Assets (days) 35 41 31 37 80 49 40 38
Payables (days) 132 146 100 87 136 100 95 93
Other Current Liab & Provns (days) 196 181 116 160 100 67 59 56
Cash Conversion Cycle (days) (219) (213) (123) (153) (77) (69) (71) (67)
Net Debt/EBITDA (x) 3.0 2.4 2.4 2.6 1.0 (0.5) (0.9) (1.2)
Net D/E 0.5 0.5 0.5 0.5 0.1 (0.1) (0.1) (0.2)
Interest Coverage 9.0 5.9 3.8 3.0 2.6 3.6 4.9 6.2
PER SHARE DATA (Rs)
EPS 50.5 60.9 66.8 67.4 67.8 79.6 102.2 122.4
CEPS 68.6 86.8 99.3 101.9 109.0 120.9 147.4 171.3
Dividend 6.1 6.6 6.4 6.0 6.1 7.0 7.0 8.0
Book Value 409.2 455.4 600.6 696.9 1,086.4 1,165.5 1,259.3 1,372.0
VALUATION
P/E (x) 42.5 35.3 32.2 31.9 31.7 27.0 21.0 17.6
P/Cash EPS (x) 31.3 24.7 21.6 21.1 19.7 17.8 14.6 12.5
P/BV (x) 5.2 4.7 3.6 3.1 2.0 1.8 1.7 1.6
EV/EBITDA (x) 34.6 25.1 19.8 19.1 20.2 13.5 10.9 9.0
EV/Revenue (x) 5.2 4.1 2.9 2.8 3.5 2.0 1.6 1.4
Dividend Yield (%) 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4
OCF/EV (%) 3.2 4.2 2.8 6.7 (9.7) 6.9 7.3 6.8
FCFF/EV (%) (3.7) (1.1) 2.3 1.6 (12.9) 5.1 3.2 3.5
FCFE/M Cap (%) (2.2) (0.2) 6.3 3.7 (21.8) 5.0 1.0 1.1
Source: Company, HSIE Research
Page | 5
Reliance Industries: Company Update
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: >10% Downside return potential
Date CMP Reco Target
19-Jul-20 1,911 ADD 1,560
31-Jul-20 2,067 ADD 1,992
15-Oct-20 2,297 ADD 2,051
2-Nov-20 2,054 ADD 2,140
25-Jan-21 2,050 ADD 2,330
3-May-21 1,996 ADD 2,285
25-Jun-21 2,154 ADD 2,280
RECOMMENDATION HISTORY
1,200
1,400
1,600
1,800
2,000
2,200
2,400
Jun
-20
Jul-
20
Au
g-2
0
Sep
-20
Oct
-20
No
v-2
0
Dec
-20
Jan
-21
Feb
-21
Mar
-21
Ap
r-21
May
-21
Jun
-21
Reliance Inds TP
Page | 6
Reliance Industries: Company Update
Disclosure:
We, Harshad Katkar, MBA, Nilesh Ghuge, MMS, Rachael Alva, CA, & Rutvi Chokshi, CA authors and the names subscribed to this report, hereby certify that
all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. HSL has no material adverse disciplinary
history as on the date of publication of this report. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative
or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding
the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict
of interest.
Any holding in stock –No
HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475.
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