25 june 2021 company update reliance industries

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

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Rachael Alva

rachael.alva @hdfcsec.com

+91-22-6171-7330

Rutvi Chokshi

[email protected]

+91-22-6171-7356

mailto:[email protected]


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)


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


Page | 3


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


Page | 4


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


Page | 5


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


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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25 june 2021 company update reliance industries

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