31 March 2020
Update | Sector: Oil & Gas
TP: INR1,523 (+37%)
Core business implies mere 2.5x FY22E EV/EBITDA
Given the current shutdown of retail stores (except grocery), Reliance Retail
could see 4-5% revenue loss; however, the pace of recovery is key. Thus, we
have reduced our target multiple to 19x EV/EBITDA to capture this impact (21x
earlier), with revised TP of INR450 (v/s INR500 earlier).
Further, RJio should see limited impact as drop in new subscriber
addition/physical recharges would get offset by an increase in data
consumption. RJio should also gain from the weakening third player in the
For the core business, we have revised down Reliance Industries’ (RIL) refinery
throughput and petrochemical sales to factor in the COVID-19 lockdown. The
demand for both air and road transportation fuels has been drastically
affected, leading to fall in cracks of ATF, petrol and diesel.
Considering that the tide would soon turn in favor of the core segment, we
highlight RIL as one of the top picks in the sector. At CMP, the core business
implies mere 2.5x FY22E EV/EBITDA.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
7052.1 / 86.8
1618 / 876
Financials & Valuations (INR b)
2020E 2021E 2022E
6,072 6,148 7,797
Adj. EPS (INR)
EPS Gr. (%)
720.2 788.5 891.2
Div. Yield (%)
Shareholding pattern (%)
Dec-19 Sep-19 Dec-18
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Reliance Retail – recovery expected to be slow
The potential revenue loss due to the shutdown of Reliance’s retail
network (except grocery), given the ongoing lockdown in India, is
estimated at ~50% in 1QFY21E with monthly cash burn of ~INR7.6b.
Recovery is expected to be slow with potential EBITDA cut of ~60%/30%
The ongoing lockdown should have limited impact on RJio as telecom
companies are expected to see recharge upgrades given the increase in
data consumption. While this may partly be impacted by low new
subscribers and physical store recharges, it would be cushioned by
increase in digital recharges.
Further, our FY21/FY22E revenue growth estimates (49%/14%) could see
an upward revision as there is an increase in noise around the next round
of price hikes to improve industry health. For FY21/FY22E, we estimate
subscribers at 469m/483m and ARPUs of INR158/INR163.
As demand for both air/road transportation fuels have been drastically
affected due to COVID-19, cracks of ATF, petrol and diesel have slumped.
ATF cracks have declined from USD13.9/bbl in 3QFY20 to ~USD4/bbl in
the past few days. Cracks of petrol have dropped from USD12.9/bbl in
3QFY20 to USD0.5/bbl and that of diesel from USD12/bbl to USD8/bbl.
Singapore GRM has declined to -USD2/bbl in the past few days led by low
cracks. The decline in oil price and low LNG prices would certainly help
through lower fuel and loss. However, the lower cracks, light-heavy
differential and huge inventory losses are currently staring the company
in the face.
RJio – revenue growth estimates may see upward revision
RIL – core may suffer
Swarnendu Bhushan- Research analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Aliasgar Shakir – Research analyst
(Aliasgar.Shakir@motilaloswal.com); +91 22 6129 1565
Sarfraz Bhimani - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com); +91 22 6129 1566
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
advised to refer through important disclosures made at the last page of the Research Report.