Reliance Industries
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
RIL IN
6,339
9300.1 / 120.4
1618 / 876
24/15/19
16275
2 May 2020
4QFY20 Results Update | Sector: Oil & Gas
CMP: INR1,467
TP: INR1,618 (+10%)
Buy
Tech and consumer businesses – the new core
RIL’s 4QFY20 consol. and standalone EBITDA were in line with our estimates,
however, the company has recorded its first ever inventory loss in the O2C
business, which has led to a PAT miss.
RJio’s revenue was up 6% QoQ to INR148b (5% miss) led by 1.7% increase in ARPU
to INR131 (v/s est. INR137) due to the price hike taken in Dec’19; subscribers
grew 5% QoQ to 387.5m.
The increase is ARPU was lower than our estimate likely due to the higher
proportion of low ARPU Jiophone customer addition, which may have dragged
blended ARPU by 2-3%. The benefit of the price hike has not been fully captured
yet with incremental benefit expected to accrue in FY21E of 15/20%.
FY20 consol. EBITDA grew 4% YoY to INR879b with adj. PAT up 8% YoY to
INR433b. RJio gained from strong subscriber led revenue growth, driving 43%
EBITDA growth in FY20. Reliance Retail’s EBITDA surged 56% on revenue growth
of 26% coupled with healthy 190bp margin improvement.
On the other hand, standalone EBITDA was down 12% YoY to INR519b (led by 4%
YoY decline in GRMs and 18% YoY decline in petchem EBITDA/mt). Adj. PAT
declined 3% YoY to INR342b (due to lower depreciation and higher other income)
RIL is moving quickly to realize its plan of becoming net debt free by end-FY21.
The company is now poised to receive ~INR1,037b through rights issue, the
Facebook-Jio deal and the Fuel retailing JV with BP in the coming quarters.
The contribution from standalone business to consol. EBITDA has declined to 60%
in FY20 from 85% in FY15. Higher debt in the standalone business as well as
better valuations for Tech/Consumer businesses (together account for 78% of
valuations) leads us to believe these two segments are the new core.
We value RIL at INR1,618/share (from earlier INR1,589) based on SOTP with
equity values of INR358/share (earlier INR353) for the core business,
INR500/share (earlier INR450) for Reliance Retail and INR760/share (earlier
INR750) for RJio. Maintain Buy.
Financials & Valuations (INR b)
Y/E March
2020E 2021E
Net Sales
5,957 5,358
EBITDA
879
902
Net Profit
432
421
Adj. EPS (INR)
68.1 66.4
EPS Gr. (%)
8.4
-2.5
BV/Sh. (INR)
715.1 776.7
Ratios
0.6
0.5
Net D:E
RoE (%)
10.3
8.9
RoCE (%)
8.5
7.7
Payout (%)
11.6
7.3
Valuations
P/E (x)
21.5 22.0
P/BV (x)
2.0
1.9
EV/EBITDA (x)
13.5 13.2
EV/Sales (x)
2.0
2.2
Div. Yield (%)
0.4
0.3
Shareholding pattern (%)
As On
Dec-19 Sep-19
Promoter
48.9
48.9
DII
13.6
14.2
FII
26.3
25.6
Others
11.2
11.4
FII Includes depository receipts
2022E
6,873
1,197
622
98.1
47.8
867.2
0.3
11.9
9.9
7.8
14.9
1.7
9.4
1.6
0.4
Dec-18
46.2
12.2
25.7
16.0
Decline in debt could result in next leg of rerating
Standalone debt net of cash and current investments has risen from
INR938b in FY19 to INR1,516b driven by transfer of INR1,080b of debt from
telecom and partial repayments. Consol. net debt is marginally up from
INR1,852b in FY19 to INR1,876b in FY20.
While the stake sale is expected to fetch INR436b, the company is creating a
separate O2C business and is looking forward to another transaction of a
similar magnitude. The RIL-BP joint venture is also expected to be
concluded soon, which should fetch INR70b. This is in addition to the rights
issue of INR531b and PAT + Depreciation of INR664b in FY21 (capex of
INR500b), which would easily take the company to net debt free status and
may drive the next leg of rerating for the company.
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
2 May
Oswal
Motilal
2020
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P
1
Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
Reliance Industries
4QFY20 snapshot
Consol. business EBITDA came in line with our estimate of INR218b (+5% YoY),
primarily led by better performance of the Digital and Retail segments.
However, higher depreciation and interest cost led to a miss on PBT (before
exceptional expense) to INR135b (13% miss, -2% YoY). The company recognized
exceptional expense of INR42.7b, primarily as non-cash inventory loss in the
O2C business (with ~INR0.2b toward other liabilities and AGR dues reversal).
Reported PAT came in at INR66b (-37% YoY). Adj. PAT was 8% lower YoY to
INR96b (20% miss).
Tax rate during the quarter was higher at 28.9% (v/s 20.9% in 3QFY20) on
consol. basis, led by higher tax rate of ~38.5% (v/s 18.5% in 3QFY20) in the
standalone business.
Standalone EBITDA was down 18% YoY to INR113b (v/s est. of -3%), mainly due
to lower price realization with weaker demand in the market for petroleum and
petrochemical products. Higher depreciation and interest cost resulted in 18%
miss on PBT (before exceptional expense of INR42.5b) to INR84b. Increase in
depreciation was on account of capitalization of Petcoke gasifier. Interest cost
was higher owing to INR depreciation during the quarter. Reported PAT stood at
INR26b (-70% YoY) with a higher tax rate. Adj. PAT was down 39% YoY to INR52b
(33% miss on our estimates).
RJio – subscriber churn retraces to historical level
Gross/net subscriber adds stood at 23.9m/17.5m (v/s 37.1m/14.8m in 3QFY20).
In 3QFY20, RJio reported high subscriber churn (2.1%) due to its decision of
passing IUC charges to customers, however, the trend has now reversed back to
historical levels with monthly subscriber churn rate of 0.57% in 4QFY20.
EBITDA came in at INR62b, up 10.6% QoQ (in-line) with margin expansion of
170bp to 41.6% (90bp beat). Margin expansion was due to (a) higher margin on
additional revenue gained from the price hike taken in Dec’19, and (b) moving
from access charge payer to recipient.
Reliance Retail – impacted by lockdown; supported by groceries
Reliance Retail’s revenue grew a mere 4% YoY to INR382b in 4QFY20 due to the
nationwide lockdown.
Sales of Lifestyle/Consumer electronics declined 41%/6% YoY while like-to-like
sales for the Jan-Feb period grew 41%/42% YoY. Grocery segment sales grew
46% YoY during 4QFY20.
Grocery segment provided big support to the overall EBITDA, which came in at
the highest level of 6.7% (+80bp YoY). Thus, EBITDA was up 21% YoY to INR23b
(on pre Ind-AS 116 basis).
Reliance Retail’s total store count stood at 11,784 (net addition of 468 in
4QFY20 and 1,369 in FY20 ) and total retail area at 29m sq.ft.
The strategic partnership of RJio-Facebook announced in Apr’20 (by acquiring
9.9% stake in JPL), is further expected to strengthen the retail arm of Reliance
with the Grocery segment expected to witness increased opportunities.
2 May 2020
2
 Motilal Oswal Financial Services
Reliance Industries
Core GRM at USD4.5/bbl (adj. for exceptional item)
Reported GRM was higher at USD8.9/bbl v/s our est. of USD7.5/bbl (+9% YoY, -
3% QoQ).
Reported GRM resulted in premium over SG GRM of USD7.7/bbl (highest ever),
as the company benefited from better performance of Diesel cracks and
favorable crude (widening of the light-heavy) differentials.
However, the company has recorded non-cash inventory loss of INR42.5b (as
exceptional item), which if adjusted (like normally done for OMCs) would result
in inventory loss of USD4.4/bbl during the quarter. Thus, the core GRM stands at
USD4.5/bbl.
SG GRM was lower in the quarter due to a steep decline in Gasoline and ATF
cracks because of global demand destruction, primarily for transportation owing
to the COVID-19 outbreak. HSD cracks saw marginal decline.
For FY20, RIL’s GRM was lower by 4% YoY to USD8.9/bbl (v/s USD9.3 in FY19).
The premium over SG GRM expanded to USD5.1/bbl (v/s USD4.4 in FY19) aided
by the company’s ability to manage product yields favoring better cracks (i.e.
diesel).
Refining throughput was 5% higher than our est. at 18.3mmt (+14% YoY). The
company enjoys huge benefit from its petrochemical integration, which
translated into higher utilization despite lower demand in the lockdown. FY20
refinery production was up 3% YoY to 70.6mmt.
4QFY20 refining EBIT was up 41% YoY at INR57b owing to lower fuel cost. For
FY20, refining EBIT was up 8% YoY to INR209b led by maximization of middle
distillates yield and better feedstock optimization.
Petrochem production was 4% higher YoY to 9.8mmt (flattish QoQ), while
segmental EBIT declined 41% YoY to INR46b due to significant price volatility
and collapse in demand, resulting in lower realizations. For FY20, petchem EBIT
saw a decline of 20% YoY to INR252b, due to pressure on product margins amid
global supply glut.
Implied EBITDA (USD/mt of total petrochem production) was 18% lower QoQ to
~USD84 (-38% YoY). For FY20, petrochemical production was up 10% YoY to
38.3mmt while EBITDA/mt was down 18% YoY, which led to significant
oversupply in the market.
After the recent FB-Jio deal, the company has now announced rights issue of
INR531b (in the ratio of 1:15) at share price of INR1,257 (i.e. 12% discount to
RIL’s CMP of 1,427). Rights issue is planned in a phased manner with 25% on
application (is expected to open on 22nd May’20) and the remaining in one or
more call on rights as decided by the board.
Promoters would subscribe their full entitlement of rights issue and also all the
unsubscribed portion. This highlights a sense of confidence on the part of
promoters to deploy (at least 49%) their own capital into the company.
The company is now poised to receive ~INR1,037b (through rights issue of
INR531b, Facebook-Jio deal of INR436b and Fuel retailing JV with BP of INR70b)
in the coming months. The company is said to have received interest from other
global strategic and financial investors for additional stake sale in Jio.
Production volumes stable…
Finally on the path of value unlocking
2 May 2020
3
 Motilal Oswal Financial Services
Reliance Industries
Valuation and view
RJio has shown consistent EBITDA growth, reaching the dominant no. 1 position
by revenues in less than four years of launch. We are upbeat on RJio’s multiple
monetization avenues coming from increasing long-term ARPUs and other digital
applications with the Facebook deal. Thus, we have maintained our TP despite a
downward revision in EBITDA due to ARPU increase being pushed forward.
Reliance Retail has maintained a strong performance amidst a slowing economy
with consistent EBITDA growth. We expect revenue CAGR of 28% over FY20-22E
to reach INR1.9t by FY22E and EBITDA CAGR of 22% to INR135b by FY22E. Strong
earnings growth would clearly draw a case for expansion of valuation multiple.
We have built in GRMs of USD8/10/bbl for FY21/22E (from USD8/11/bbl earlier),
with our model already adjusted for production volume (refining and
petrochemical) impact of 1.5 months shutdown in FY21.
Petrochem margins are likely to be weak in light of lower product demand, the
weak economic outlook and the strong additional supply globally over the next
2-3 years (RIL earlier guided petchem market to balance out by 2021-22E). We
also lower our FY22E petchem EBIDTA/mt by 10% to USD105/mt (keeping FY21
unchanged at USD95/mt).
The revision in our estimates results in standalone EBITDA cut of 14% for FY22E
(FY21 unchanged). Also, transferring of debt to the standalone business has led
to an increase in interest cost, resulting in downward revision of EPS by
13%/22% for FY21/22E. However, with new balance sheet numbers, we revise
down our net debt forecast for FY21 from INR2,095b to INR1,729b, resulting in
standalone valuation rising from INR353/share to INR358/share.
We value RIL at INR1,618/share (from earlier INR1,589), based on SOTP with
equity values of INR358/share for the core business, INR500/share (earlier
INR450) for Retail and INR760/share (earlier INR750) for Jio. We value the core
segment of Refining and Petrochem at 6.0x FY22E EV/EBITDA, factoring in the
enhanced delayed coker capacity, the widening of crude blend window for
maximizing distillate yields prior to the IMO and the revival in Petchem margins
for the company under its flexible feedstock utilization.
The stock trades at 22x FY21E EPS of INR66.4 and 13.2x FY21E EV/EBIDTA. We
reiterate our Buy rating on the company with a revised TP of INR1,618.
Exhibit 2: Debt profile of RIL
Exhibit 1: RIL SOTP valuation (INR/share)
6.0x FY22 EBITDA
Equity value
Standalone
Net debt (INR bn)
1,735
Consol
1,852
1,710
1,876 1,887
1,729 1,193
1,516
1,195
760
33
500
292
1,618
1,279 1,213 1,197
267
350
938
476
527
408
585
498
Transfer of INR1,080b
from telecom
Refining Petchem E&P
INR/share
Reliance
Retail
RJio
Net debt Target
/ (cash) price
Source: Company, MOFSL
Source: Company, MOFSL
2 May 2020
4
 Motilal Oswal Financial Services
Reliance Industries
Standalone - Quarterly Earning Model
Y/E March
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
Key Assumptions
Refining throughput (mmt)
GRM (USD/bbl)
Petchem EBITDA/tonne (USD/MT)
Petchem production (mmt)
E: MOFSL Estimates
1Q
911.6
42.0
151.5
16.6
27.6
21.4
20.7
123.2
0.0
123.2
35.0
28.4
88.2
88.2
7.6
9.7
FY19
2Q
3Q
961.7 1,001.0
40.3
36.6
148.9
145.1
15.5
14.5
27.5
25.9
24.2
24.1
20.1
24.6
117.4
119.7
0.0
0.0
117.4
119.7
28.8
30.4
24.6
25.4
88.6
89.3
88.6
89.3
7.2
5.6
9.2
8.9
4Q
837.7
-0.3
138.7
16.6
24.7
27.9
27.2
113.3
0.0
113.3
27.8
24.5
85.6
85.6
-1.6
10.2
1Q
882.6
-3.2
136.4
15.5
21.8
27.0
33.5
121.1
0.0
121.1
30.7
25.4
90.4
90.4
2.4
10.2
FY20
FY19
FY20E
2Q
3Q
4Q
871.4 863.8 739.6 3,716.2 3,359.8
-9.4 -13.7 -11.7
28.1
-9.6
136.7 129.6 113.4
588.5
518.5
15.7 15.0 15.3
15.8
15.4
23.2 25.5 26.9
105.6
97.3
27.2 25.2 41.6
97.5
121.1
36.3 38.7 39.5
88.2
145.4
122.6 117.5 84.4
473.7
445.6
0.0
0.0 42.5
0.0
42.5
122.6 117.5 42.0
473.7
403.2
25.5 21.7 16.2
122.0
94.1
20.8 18.5 38.5
25.8
23.3
97.0 95.9 25.8
351.6
309.0
97.0 95.9 51.9
351.6
341.6
9.5
7.4 -39.4
4.6
-2.9
11.1 11.1
7.0
9.5
10.2
18.3
8.9
84.2
9.8
68.3
9.3
140.8
37.7
70.6
8.9
115.2
38.3
(INR Billion)
FY20 Var v/s
4QE Est. (%)
785.6
-6%
-6.0
116.5
-3%
14.8
25.3
6%
26.9
55%
39.2
1%
103.5
-18%
0.0
103.5
-59%
26.1
-38%
25.2
77.5
-22%
77.5
-33%
-9.5
9.9
17.5
7.5
5%
19%
16.6 17.7
10.5
9.5
146.1 143.6
9.2
9.4
18.0 16.0 17.5 16.7 18.1
8.8
8.2
8.1
9.4
9.2
136.8 136.8 145.6 128.3 102.7
9.7
9.4
8.7
9.9
9.9
Consolidated - Quarterly Earning Model
Y/E March
Net Sales
YoY Change (%)
EBITDA
Margins (%)
Depreciation
Interest
Other Income
PBT before EO expense
Extra-Ord expense
PBT
Tax
Rate (%)
Minority Interest & P/L of Asso. Cos.
Reported PAT
Adj PAT
YoY Change (%)
Margins (%)
E: MOFSL Estimates
1Q
1,287.6
54.3
206.6
16.0
51.7
35.5
17.8
137.2
0.0
137.2
42.4
30.9
-0.1
94.8
94.8
4.5
7.4
FY19
FY20
FY19 FY20E
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1,433.2 1,569.0 1,386.6 1,569.8 1,493.0 1,531.8 1,362.4 5,692.1 5,957.0
56.7
57.2
18.6
21.9
4.2
-2.4
-1.7
45.3
4.7
211.1 213.2 208.3 213.2 221.5 226.3 217.8 841.7 878.8
14.7
13.6
15.0
13.6
14.8
14.8
16.0
14.8
14.8
52.3
52.4
53.0
50.1
53.2
55.5
63.3 209.3 222.0
39.3
41.2
48.9
51.1
54.5
54.0
60.6 165.0 220.3
12.5
24.6
31.5
31.5
36.1
34.1
41.3
83.9 143.0
132.0 144.2 137.9 143.4 150.0 150.8 135.2 551.2 579.4
0.0
0.0
0.0
0.0
0.0
1.8
42.7
0.0
44.4
132.0 144.2 137.9 143.4 150.0 149.1
92.5 551.2 535.0
36.5
40.7
34.3
42.3
37.0
31.2
26.8 153.9 137.3
27.7
28.2
24.9
29.5
24.7
20.9
28.9
27.9
25.7
0.0
-0.2
-0.7
-0.3
-0.5
-0.6
0.3
-1.0
-1.1
95.5 103.8 104.3 101.4 113.5 118.4
65.5 398.4 398.8
95.5 103.8 104.3 101.4 113.5 119.8
95.8 398.4 431.8
17.9
9.9
10.2
6.9
18.9
15.5
-8.1
10.4
8.4
6.7
6.6
7.5
6.5
7.6
7.8
7.0
7.0
7.2
(INR Billion)
FY20 Var v/s
4QE Est. (%)
1,417
-4%
2.2
219
0%
15.4
53
18%
51
18%
41
1%
155
-13%
0
155
-40%
35
-24%
22.8
0
120
-46%
120
-20%
15.3
8.5
2 May 2020
5
 Motilal Oswal Financial Services
Reliance Industries
RJio’s subscriber driven growth continues
ARPU growth remains modest; ARPU outlook, new avenues upbeat
EBITDA up 11% QoQ
RJio’s 4QFY20 results came in slightly below estimates. Revenue grew 6% QoQ to
INR148b (5% below estimates) on the back of lower than expected 2% ARPU growth
coupled with industry leading net subscriber addition of 17.5m (v/s Bharti/VIL’s
expected subscriber adds of 1m/-16.5m in 4QFY20), albeit at a slowing pace. Gross
subscriber adds stood at 23.9m (v/s 37.1m QoQ). Monthly churn has retraced back
to historical trends at 0.57%. The ongoing lockdown due to COVID-19 has
contributed to the increase in data traffic growth of 6.3% QoQ to 12.8b GB/month
along with voice traffic data of 6% to 876b minutes, even as data usage/subs
increased 2% QoQ to 11.3GB/month. EBITDA came in at INR62b, up 10.6% QoQ (in-
line) with margin expansion of 170bp to 41.6% (90bp beat). Margin expanded due to
higher margin on additional revenue gained from the price hike and moving from
access charge payer to recipient. PAT came in at INR23b, up 72.7% QoQ (v/s est.
INR18b). RJio has recognized exceptional item of INR310m due to provision reversal
of AGR dues.
ARPU benefit to be protracted
ARPU increased 1.7% QoQ to INR131 below our est. 7% increase to INR137
(assumed on the back of price hike taken in Dec’19). This, we believe could be due
to higher mix of low ARPU Jiophone subscribers adds, excluding this, smartphone
ARPUs grew 5%. The same is below our expectation of ~10% ARPU increase for
Bharti/VIL as we do not see this as an industry phenomenon of downtrading given
that prevailing ARPUs are below even the base data price plans. Management has
indicated that given the large base of subscribers using longer validity plans, the
ARPU increase should be spread throughout the year and see ~20% increase on a
full year basis, according to the average increase in price plans.
Aliasgar Shakir
aliasgar.shakir@motilaloswal.com
022 61291568
New avenues of growth
We remain positive on overall growth in the telecom industry (particularly RJio). The
ongoing subscriber driven revenue growth should shift to ARPU-led growth given
that (a) incremental subscriber growth is limited to low ARPU Jiophone and only
new smartphone subscriber addition, (b) there is strong monetization opportunity
from existing subscribers (with such large subscriber base and reducing competitive
landscape), and (c) VIL’s weakening position would compel it to take a big ARPU hike
to manage operations and also gather regulatory support. Further, the recent
strategic investment from Facebook adds enormous growth possibility through
digital applications. Given the lower-than-expected ARPUs, we have cut
revenue/EBITDA by 7.6%/5.7% for FY21E and 9.3%/8.2% for FY22E. However, PAT is
revised up 20%/38% for FY21E/22E on lower interest cost due to reducing debt
owing to the recent debt reorganization. We have marginally tweaked TP to INR760
(v/s INR750 earlier).
2 May 2020
6
 Motilal Oswal Financial Services
Reliance Industries
RJio analyst call highlights
The company has recorded 20-25% increase in wireless traffic post the lockdown. This
has led to an increase in data traffic to 170m GB/day.
Since the lockdown, consumer engagement has increased significantly, which has led
to an increase in data traffic by 50%. RJio supported the sharp increase in data traffic
through RF capacity optimization, backhaul IP link augmentation and upgradation of
caching and peering links.
Due to its recent investment, Facebook would be provided with one seat (total 15
seats) on the company’s board.
Jio Platforms is also receiving investment interest from other strategic investors.
ARPU stood at INR130.6 for 4QFY20 and does not include full benefit of the price hike
taken in Dec’19. Some benefit of the price hike is also expected in 1QFY21.
Operational performance
RJio has added 17.5m net subscribers in 4QFY20. In the last quarter, subscriber
churn had increased significantly due to the company’s decision to pass IUC
charge to customers; however, this has retraced to previous level with monthly
churn in 4QFY20 at 0.57%.
RJio has 388m subscribers as of 4QFY20.
Since the lockdown, consumer engagement has increased significantly, which
has led to increase in data traffic by 50%. Average data usage/subscriber stood
at 11.3Gb/month and MoU at 771min/subscriber in 4QFY20.
ARPU stood at INR130.6 for 4QFY20 and does not include full benefit of price
hike. Some benefit of price hike is also expected in 1QFY21.
The company has recorded 20-25% increase in wireless traffic post the
lockdown. This has led to an increase in data traffic to 170m GB/day.
EBITDA margin increased to 41.8% in 4QFY20 (v/s 40.1% in 3QFY20 and 37% in
4QFY19).
Net profit has recorded growth of 88% in FY20.
RJio’s net debt (excluding deferred spectrum liability) stood at INR230b as on
31
st
Mar’20.
RJio has supported the sharp increase in data traffic through RF capacity
optimization, backhaul IP link augmentation and upgradation of caching and
peering links.
Due to its recent investment, Facebook would be provided with one seat (total
15 seats) on the company’s board.
Jio Platforms is also receiving investment interest from other strategic investors.
Network enhancement to deal with COVID-19
Facebook deal and potential for other strategic deals
Valuation and view
We have marginally increased our DCF-based TP to INR760 (v/s INR750 earlier) with
an implied EV/EBITDA of 11x on FY22E. Despite the cut in EBITDA estimates by
5.7%/8.2% in FY21/22E due to a stretched ARPU increase period, we have broadly
maintained our TP as we remain positive on the telecom industry given its
importance in India’s digital evolution and the industry construct. RJio’s dominant
position should allow it to garner strong consistent growth over the long term, thus
compensating for the near-term earnings revisions.
2 May 2020
7
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 3: RJio - DCF valuation (INR b)
Particulars
EBITDA
Capex
FCFF (pre-tax)
Tax
FCFF (post tax)
Terminal Value
Cash flow after Terminal Value
NPV (INR b)
Particulars
Terminal growth rate
Enterprise value (INR b)
Net debt (INR b)
Equity value (INR b)
No of shares (b)
Target price (INR)
5%
5,084
584
4,501
5.9
760
Source: Company, MOFSL
FY20
216
368
-153
-21
-173
-173
5,084
FY21E
346
200
146
-60
87
87
FY22E
447
218
229
-87
142
142
FY23-30E
4,294
948
3,346
-996
2,351
7,105
9,456
Exhibit 4: RJio - Quarterly earnings model
(INR b)
Y/E March
Net Revenue
YoY Change (%)
Total Expenditure
EBITDA
Margins (%)
Depreciation
Finance Cost
Other Income
PBT
Tax
Rate (%)
PAT
Margins (%)
YoY Change (%)
1Q
81
NA
50
31
38.8
14
8
0
9
3
35%
6
7.5
NA
FY19
2Q
92
50.3
57
36
38.7
15
10
0
10
4
35%
7
7.4
NA
3Q
109
58.2
68
41
37.2
17
11
0
13
4
35%
8
7.6
0.6
4Q
111
55.8
68
43
39.0
17
13
0
13
5
35%
8
7.6
0.6
1Q
117
NA
70
47
40.0
17
17
0
14
5
35%
9
7.6
NA
FY20
2Q
131
42.1
80
51
39.1
18
19
0
15
5
35%
10
7.5
NA
3Q
140
28.3
84
56
40.0
18
20
0
19
5
27%
14
9.7
0.6
4Q
148
33.6
87
62
41.6
22
11
0
29
6
20%
23
15.7
1.8
FY19
388
92.7
237
151
38.9
64
41
0
46
16
35%
30
7.6
310%
FY20
Variance
4QFY20E
(%)
543
155
-4.6
39.9
40.0
327
92
-6.0
216
63
-2.5
39.7
40.7
89
74
18
17.9
66
21
-45.9
1
0
44.4
76
24
20.1
21
7
27%
27%
56
18
32.4
10.2
11
88%
110%
Source: MOFSL, Company:
4QFY20E
Var (%)
155
-4.6
92
-6.0
63
-2.5
40.7
89bps
18
17.9
45
-10.8
28.9
-189bps
21
-45.9
0
44.4
24
20.1
7
-13.1
27.1
-749bps
18
32.4
18
32.4
Source: MOFSL, Company
Exhibit 5: QoQ financial performance (INR b)
(INR b)
Revenue from operations
Operating expenses
EBITDA
EBITDA margin (%)
Depreciation and amortization
EBIT
EBIT margin (%)
Finance Costs
Other income
Profit before Tax
Tax
Tax rate (%)
Profit after Tax
Adjusted Profit after Tax
4QFY19
111
68
43
39.0
17
26
23.2
13
0
13
5
34.9
8
8
3QFY20
140
84
56
40.0
18
38
27.1
20
0
19
5
27.1
14
14
4QFY20
148
87
62
41.6
22
40
27.0
11
0
29
6
19.6
23
23
YoY%
33.6
27.7
42.7
267bps
24.3
55.2
376bps
-12.4
766.7
124.6
26.2
-1531bps
177.5
177.5
QoQ%
6.2
3.3
10.6
165bps
20.7
5.8
-10bps
-42.0
44.4
56.6
13.3
-749bps
72.7
72.7
2 May 2020
8
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 6: RJio: KPI comparison
Key Operating Metrics
Subscriber base (m)
Net subs adds
Gross sub adds
Churn per mth (%)
ARPU (INR/sub/month)
Total wireless Data traffic (cr GB)
Wireless Data traffic per sub (GB/mth)
Voice on Network (b min)
Voice consumption per sub (min/mth)
4QFY19
306.7
26.6
33.2
0.8%
126
956
10.9
724
823
Revenue
(INR b)
3QFY20
370.0
14.8
37.1
2.1%
128
1,208
11.1
826
760
4QFY20
387.5
17.5
23.9
0.6%
131
1,284
11.3
876
771
YoY%
26.3
-34.2
-28.0
-18bps
3.5
34.3
4.0
21.0
-6.3
QoQ%
4.7
18.2
-35.6
-153bps
1.7
6.3
1.8
6.0
1.5
4QFY20E
384.0
14.0
Var (%)
0.9
25.0
137
1,256
11.1
859
760
-5.0
2.2
1.8
2.0
1.5
Growth (%)
5.4%
0%
0%
1.7%
Exhibit 7: ARPU reconciliation
Subscriber category
Smartphone Subs
Jiophone Subs
Prime Subscription
Total
120
25
3
148
4QFY19
306.70
26.60
0.75%
6.60
33.2
23
4.1
Average
Subscribers (m)
277.7
101.1
123.1
378.8
1QFY20
331.30
24.60
0.97%
9.64
34.24
23
11.7
4QFY20 ARPU
(INR)
144
84
8
131
2QFY20
355.20
23.90
0.74%
7.89
31.79
23
9.3
3QFY20 ARPU
(INR)
137
84
8
128
3QFY20
370.00
14.80
2.1%
22.30
37.1
18
19.1
Exhibit 8: Subscriber working (m)
Subscribers gr. drivers
Subscribers
Net Adds
Churn
Subs churn
Gross Subscriber adds
Smartphone adds
Jiophone Subs adds
4QFY20
387.50
17.50
0.57%
6.40
23.9
7
16.5
Source: MOFSL
Exhibit 9: RJio– Pace of net subscriber adds slowing (m)
Net subs adds (m)
42.0
27.8 27.9 30.5
Gross subs adds (m)
32.9 33.2 34.2 31.8
37.1
23.9
Exhibit 10: RJio – EBITDA margins expanded 170bp QoQ
Revenue (INR b)
EBITDA margins (%)
41.6
38.2 37.8 38.8 38.7 37.2 39.0 40.0 39.1 40.0
23.5
15.2
21.5 26.5 28.7 37.0 27.8 26.6 24.6 23.9 14.8 17.5
61
69
71
81
92
109 111 117 131 140 148
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 11: RJio – Voice traffic grew 6% in 4QFY20
Voice traffic (b min)
27%
20% 21% 19% 19%
14%
9%
246 311 372 449 534 634 724 786
3%
2%
813 826 876
6%
QoQ growth (%)
Exhibit 12: RJio – Data traffic also increased 6% in 4QFY20
Data traffic (b GB)
27%
14%
17%
20%
12% 11%
5.0
6.4
7.7
8.6
14%
10%
QoQ growth (%)
12.1
6%
3.8
4.3
9.6 10.9 12.0 0% 12.8
Source: MOFSL, Company
Source: MOFSL, Company
2 May 2020
9
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 13: ARPU increased 1.7% QoQ to INR131 along with 4.7% subscriber growth
Subscribers (m)
156
154
137
135
132
130
ARPU (INR)
126
122
128
128
131
138.6
160.1
186.6
215.3
252.3
280.1
306.7
331.3
355.2
370
387.5
Source: MOFSL, Company
Exhibit 14: Jio – Summary of estimate change
Revenue (INR b)
Old
Actual/New
Change (%)
EBITDA (INR b)
Old
Actual/New
Change (%)
EBITDA margin (%)
Old
Actual/New
Change (bp)
Net Profit (INR b)
Old
Actual/New
Change (%)
EPS (INR)
Old
Actual/New
Change (%)
MoU (min)
Old
Actual/New
Change (%)
ARPU (INR)
Old
Actual/New
Change (%)
Subs (m)
Old
Actual/New
Change (%)
FY21E
781
722
-7.6
367
346
-5.7
47.0
48.0
95bps
138
165
20.0
3.1
3.7
20.0
792
793
0.0
154
144
-6.4
462
448
-3.1
Revenue (INR b)
38.9
39.7
EBITDA margin (%)
48.0
33.4
FY22E
893
810
-9.3
487
447
-8.2
54.5
55.2
64bps
169
233
38.0
3.7
5.2
38.0
792
793
0.0
159
148
-6.4
476
462
-3.0
Exhibit 15: RJio – EBITDA margin to expand
55.2
202
388
FY18
FY19
543
FY20
722
FY21E
810
FY22E
Source: MOFSL, Company
2 May 2020
10
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 16: Price hike benefit to be fully reflected in 1QFY21
Subscribers base (m)
144
131
130
ARPU (INR/month)
144
148
218
106
Exhibit 17: FCF to turn positive in FY21 (INR b)
0
109
FY17
187
FY18
307
FY19
388
FY20
448
FY21E
462
FY22E
-322
FY18
-372
FY19
-342
FY20
FY21E
FY22E
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 18: RJio – Return ratios to rise (%)
RoE (%)
12.0
8.0
RoCE (%)
RoIC (%)
Exhibit 19: RJio – Net debt to EBITDA to decline significantly
due to debt restructuring (x)
Net Debt / EBITDA (x)
21.1
9.7
4.0
1.5
0.0
FY18
FY19
FY20E
FY21E
FY22E
FY18
FY19
FY20E
Source: Company, MOFSL
0.4
FY21E
0.1
FY22E
Source: Company, MOFSL
2 May 2020
11
 Motilal Oswal Financial Services
Reliance Industries
Reliance Retail – Grocery biz supports in tough times
Impacted by lockdown but grocery segment shines
Reliance Retail’s revenue grew a mere 4% YoY to INR382b in 4QFY20 due to closure
of stores in the latter half of Mar’20 due to the lockdown. Sales of
Lifestyle/Consumer electronics declined 41%/6% YoY while like-to-like sales for the
Jan-Feb period grew 41%/42% YoY. However, sales of the essential Grocery segment
stood higher and grew 46% YoY during the quarter (even higher than the 35%
growth during Jan-Feb’20) due to strong push owing to the lockdown.
Grocery segment provided big support to overall EBITDA, which came in at the
highest level of 6.7% (+80bp YoY). Thus, EBITDA was up 21% YoY to INR23.2b (on pre
Ind-AS 116 basis).
Segmental EBITDA disclosures highlight incredible profitability
For the first time, the company has disclosed segmental EBITDA between Grocery,
Consumer Durables, and Fashion and Apparels. Surprisingly, during the quarter,
revenue growth was flattish, yet EBITDA growth came in at robust 21% even after
adjusting for Ind-AS 116 impact. Management has indicated strong operating
leverage at play, which should support growth over FY20-FY22E. Grocery EBITDA
grew 107% on 46% revenue growth. More surprising was the Consumer Durables
category seeing EBITDA decline of 20% and Fashion and Apparel segment seeing
EBITDA growth of 40%, despite declining revenue growth of 41% and 6%,
respectively. Fashion/apparel business saw strong 29.6%/23.9% EBITDA margin in
4QFY20/FY20 on post Ind-AS 116 basis. Even after adjustment of Ind-AS 116, EBITDA
margin would be ~22-25%, much above best in class peers’ EBITDA margin of 10-
12%.
Jio-Mart – pushing itself to the last mile
In Dec’19, Reliance Retail announced the launch of Jio-Mart – built to connect ~30m
neighboring
kirana
stores to the online platform – to order and deliver daily
consumption basket (including daily staples, soaps, shampoos and other household
items). The strategic partnership of RJio-Facebook announced in Apr’20 (acquired
9.9% stake in JPL), is further expected to strengthen the retail arm of Reliance.
The current lockdown phase has resulted in a spike in consumption of online grocery
and essential home items, and the trend is likely to continue over the next couple of
months (further, customers could get habituated to online shopping over the long
term). Reliance has already begun pilot testing in some local areas, wherein
customers can order groceries from the local
kirana
store over Whatsapp
application. Additional synergies are expected to arrive in the form of Reliance Retail
pushing its margin- accretive private label products to these stores and providing
easy credit terms (which could be a competition to FMCG/Consumer Staple
companies). Further strengthening of its supply chain, logistics and additional
investment in the home delivery capabilities would scale the company’s delivery-
based model and would be the key drivers for its grocery segment.
2 May 2020
12
 Motilal Oswal Financial Services
Reliance Industries
Valuation and view
Reliance Retail has maintained robust performance amidst a slowing economy. Its
grocery segment is likely to support revenues during the lockdown phase and its
strategic venture with Facebook to connect local
kirana
stores should provide
synergies and scale its online business further. We expect revenue CAGR of 28%
over FY20-22E to INR1.9t by FY22E and EBITDA CAGR of 22% to INR135b by FY22E.
We value Reliance Retail on SOTP basis, valuing its core business at 24x FY22E
EV/EBITDA and petro-retail/connectivity at 4x FY22E EV/EBITDA to arrive at a target
price of INR500.
Other operating highlights
Reliance Retail’s total store count stood at 11,784 (net store adds of 468 in
4QFY20 and 1,369 in FY20) and total retail area at 29m sq.ft.
Core revenue declined 6% YoY in 4QFY20 to INR195b.
Core EBITDA grew 38% YoY to INR21.9b with margins at 11.2%.
Total EBITDA grew 33% YoY to INR25.6b with margins at 7.4%. However,
adjusting for Ind-AS 116 in 4QFY20, EBITDA grew 21% with margins expanding
80bp to 6.7%.
Fashion and Lifestyle
revenue dropped 6% YoY to INR32.9b and EBITDA grew
40% to INR9.8b with margins at 40%.
Consumer electronics
revenue declined 41% YoY to INR61.9b and EBITDA
dropped 20% to INR4.3b with margins at 7%.
Food and Grocery
revenue grew 46% YoY to INR100b; EBITDA increased 107%
to INR7.8b and margins stood at 7.8%.
Petro retail
revenue declined 7% YoY to INR34.8b; EBITDA plunged 54% to
INR300m and margins stood at 1%.
Connectivity
revenue grew 26% YoY to INR152b; EBITDA grew 24% to INR3.4b
and margins stood at 2%.
Exhibit 20: Quarterly performance (INR b)
Revenue from operations
a) Core Revenue
- Grocery
- Consumer Electronics
- Fashion and Lifestyle
b) Connectivity
c) Petro Retail
EBITDA
EBITDA margin (%)
a) Core EBITDA
Core EBITDA margin
b) Connectivity
c) Petrol Retail
4QFY19
367
209
69
104
35
121
37
19
5.9%
16
7.6%
2.7
0.7
3QFY20
453
271
88
144
39
145
37
27
7%
26
9.6%
0.6
0.7
4QFY20
382
195
100
62
33
152
35
26
7.4%
22
11.2%
3.4
0.3
YoY%
4.2
-6.4
27.4
37.4
11.9
20.4
-0.2
32.9
153bps
38.1
361bps
23.7
-54.1
QoQ%
-15.7
-27.8
14.4
-56.8
-16.4
4.5
-6.4
-6.3
72bps
-15.8
161bps
458.5
-54.0
2 May 2020
13
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 21: Summary of estimate changes (INR b)
(INR b)
Revenue
Old
Actual/New
Change (%)
EBITDA
Old
Actual/New
Change (%)
EBITDA margin (%)
Old
Actual/New
Change (bp)
Net Profit
Old
Actual/New
Change (%)
EPS (INR)
Old
Actual/New
Change (%)
FY21E
1760.3
1662.9
-6
78.2
91.0
16.5
5.0
6.2
120
52
62
18.5
10.4
12.3
18.5
FY22E
2103.4
1965.3
-6.6
114.3
135.4
18.5
5.4
6.9
146
78
94
20.1
15.7
18.9
20.1
Exhibit 22: Reliance Retail – revenue grew 4% impacted by store closures
Total Revenue (INR b)
116%
74%
116
81%
146
188
242
259
324
134% 124%
121%
89%
52%
356
367
48%
382
YoY growth
412
27%
453
27%
382
4%
Source: Company, MOFSL
Exhibit 23: Reliance Retail – EBITDA driven by grocery segment
EBITDA (INRb)
5.3%
EBITDA margin (%)
5.3%
5.9%
6.0%
6.3%
6.7%
7.4%
3.4%
4.5%
3.0%
4
3.2%
4.8%
4
6
11
12
14
17
19
20
23
27
26
Source: Company, MOFSL
2 May 2020
14
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 24: Reliance Retail store revenue contribution (INR
b)
Grocery
Fashion and Lifestyle
Petro Retail
Consumer Electronics
Connectivity
Exhibit 25: Reliance Retail segment wise EBITDA
contribution
Grocery
Fashion and Lifestyle
Petro Retail
Consumer Electronics
Connectivity
37
110
35
104
69
4QFY19
35
152
33
62
100
4QFY20
Source: Company, MOFSL
0.7
2.7
7.0
5.4
3.8
4QFY19
0.3
3.4
9.8
4.3
7.8
4QFY20
Source: Company, MOFSL
Exhibit 26: Reliance Retail revenue/EBITDA performance YoY; revenue growth for Jan-Feb shows strong growth across
categories
(INR b)
Grocery
Consumer Electronics
Fashion and Lifestyle
Connectivity
Petro Retail
4QFY19 4QFY20
69
100
104
62
35
33
110
152
37
35
Revenue
YoY Growth
46%
-41%
-6%
38%
-7%
Jan-Feb LFL Growth
35%
41%
42%
32%
10%
4QFY19
3.8
5.4
7.0
2.7
0.7
4QFY20
7.8
4.3
9.8
3.4
0.3
EBITDA
YoY Growth
107%
-20%
40%
24%
-54%
EBITDA Margin
1.5%
-0.2%
1.1%
0.2%
-1.4%
Source: MOFSL, Company
Exhibit 27: Area under coverage grows 10% QoQ, net addition of 468 stores in 4QFY20
Total Stores (000s)
18
19
20
21
Retail area (mn sqft)
22
23
24
26
29
14
3.6
14
3.7
15
3.8
7.6
8.5
9.1
9.9
10.4
10.6
10.9
11.3
11.8
Source: Company, MOFSL
Exhibit 28: FY22 SOTP Valuation
FY22 Valuation
Core EBITDA
Petro and Connectivity
Total
Less Net Debt
Equity Value
No of Shares (in b)
Target price (INR)
EBITDA
122
21
Multiple
24
4
EV (INR b)
2,981
82.1
3,063
100
2,963
5.9
500
Source: MOFSL, Company
2 May 2020
15
 Motilal Oswal Financial Services
Reliance Industries
Reliance Retail Analyst call highlights
Operating highlights
Retail revenues grew 4% YoY despite store closures due to the lockdown and
weak consumer sentiment. However, revenues for Jan-Feb grew 33% YoY
(excluding devices).
LFL growth stood at 13% in Jan-Feb, which was offset by Mar’20 due to the
COVID-19 impact.
On account of Ind-AS 116, EBITDA was higher by INR2.3b; thus, adj. EBITDA (on
like-to-like basis) grew 21% YoY to INR23.2b
EBITDA from grocery segment is likely to grow 2x in FY21 (grocery EBITDA grew
2x in FY20 too) owing to benefit of operating efficiencies, scale-up and wider
reach of business.
Reliance Retail’s net debt stood at INR46b.
Non-grocery stores and online retailing has been shut from 22
nd
Mar’20 on
account of the nationwide lockdown; only grocery stores are operational as per
the state directive.
Strong store adds, focus to increase penetration
Reliance Retail ended the year with 11,784 retail stores across formats, adding
1,500 stores in FY20 (30% space addition in FY20).
Annual footfall stood at 640m (up 17% YoY) and registered/loyal customer base
stood at 125m (40% YoY growth).
Reliance has built Jio POS lite platform, which would allow entrepreneurs to
serve their micro communities as Jio channel partners for recharges and new
acquisitions.
The company plans to increase home delivery capacity by 10 times (than
existing capacity and reach), along with rapid addition of physical stores across
formats.
Key focus areas to build a strong retail chain include:
Strengthening digital commerce and omni-channel capabilities.
Bolstering supply chain and scaling up capacity to handle home deliveries.
Scaling up retail rapidly led by new commerce ventures and digital pharmacy.
Focusing on building new applications like Jio-Meet as part of e-Education
platform and Jio-Meet Pro as part of e-healthy platform, which would be
launched soon to connect a broader set of audience during the lockdown phase.
Exploring and scaling alternate ways of engaging customers in shopping such as
pop-up stores, mobile vans, etc. to drive sales across segments.
2 May 2020
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Exhibit 29: Standalone RIL segment-wise performance snapshot
In INRb
Segmental Revenues
Petchem
Refining
Oil & Gas
Others
Total
Segmental EBITDA
Petchem
Refining
Oil & Gas
Total
EBITDA Margin (%)
Petchem
Refining
Oil & Gas
Total
Segmental EBIT
Petchem
Refining
Oil & Gas
Total
EBIT Margin (%)
Petchem
Refining
Oil & Gas
Total
1Q
390
814
8
3
1,214
90
60
2
153
23.1
7.4
31.0
12.6
77
52
-2
128
19.9
6.4
-32.5
10.5
FY19
2Q
3Q
453
889
6
4
1,352
96
58
5
160
21.2
6.6
84.7
11.8
80
49
1
131
17.6
5.6
19.7
9.7
4Q
414
688
5
5
1,113
91
48
3
142
21.9
7.0
53.5
12.7
78
40
1
120
18.9
5.9
18.5
10.7
1Q
362
766
5
4
1,136
88
52
3
142
24.4
6.7
54.7
12.5
74
44
1
120
20.4
5.8
23.9
10.5
FY20
2Q
374
765
4
5
1,148
89
57
1
147
23.9
7.4
28.6
12.8
75
49
1
125
20.0
6.4
13.4
10.9
3Q
359
782
5
5
1,152
72
68
1
141
20.2
8.7
11.8
12.3
58
59
1
117
16.1
7.5
10.3
10.2
4Q
314
678
2
9
1,003
59
66
0
125
18.9
9.8
-28.8
12.5
46
57
0
103
14.6
8.4
5.0
10.3
4QFY20 (%)
YoY
QoQ
-24.1
-1.5
-69.2
75.0
-9.8
-34.6
37.4
NM
-11.7
-12.5
-13.3
-70.5
76.0
-12.9
-18.0
-2.8
NM
-11.4
430
815
7
5
1,257
95
61
4
160
22.0
7.5
52.3
12.7
80
52
-2
130
18.5
6.3
-25.3
10.3
-41.4
41.2
-91.7
-13.7
-20.6
-3.5
-85.7
-11.9
Standalone Business - segmental view
Refining and marketing – better feedstock optimization leads the path
For FY20, refining EBIT was up 8% YoY to INR52.3b led by maximization of
middle distillates yield and better feedstock optimization.
The COVID-19 impact during the quarter was humongous despite lockdowns
coming into play only in the final month of the quarter. More than 90% of the
world was under lockdown, which has led to devastating demand destruction
for transportation fuel as economies have grounded to a complete halt.
Demand destruction of 15-20mnbopd was expected in Mar’20, which is further
expected to expand to 25-30mnbopd in Apr-May’20.
In 4QFY20, crude prices plunged 21% QoQ averaging USD50.3/bbl. Nevertheless,
announcement of production cuts by OPEC+ could not support the market and
prices declined further in Apr’20. We expect crude price to average much lower
in 1QFY21 (current estimates ~USD30/bbl).
st
As official production cuts kick in starting 1 May, crude prices have rebounded
slightly in the last one week. We expect Brent prices to normalize 3QFY21
onwards (as
highlighted in our earlier report),
factoring in the current high
storage inventory across the globe, which would take time to normalize, as real
demand would gradually pick up once lockdowns are lifted.
During the quarter, demand destruction was primarily seen in Gasoline and ATF
cracks (which tumbled to multi-years lows).
However, the company is better placed with flexibility in feedstock input along
with maximization of middle distillate yields. It has already launched niche
2 May 2020
17
 Motilal Oswal Financial Services
Reliance Industries
grades in middle distillates and VLSFO to meet the changing market
requirement.
RIL expects VGO diversion for IMO to support gasoline cracks over the near term
along with discounts on high-sulfur crude. Hence, it has also been trying to
switch to better performing diesel cracks using certain feedstock (for instance
benefiting from poor FO prices). The company has been increasing crude de-
salter capacity and has boosted capacity of DTA coker by 30%.
Petrochem – product mix to aid weaker margins
In 4QFY20, the company was able to maintain flattish QoQ petrochemical
production as it has an advantage of integrating with its refining unit and
feedstock flexibility.
China, which contributes >50% of the global chemicals supply, was severely
impacted for a major part of the quarter, which led to slight improvement in
margins.
Also, the relatively higher decline in naphtha prices (in line with crude prices)
over product prices has led to margin improvement.
Sequential expansion was registered in most petrochem margins (our data file
suggests PE expansion of +16% QoQ, PP expansion of +4% QoQ and contraction
in PX of -7% QoQ).
However, lack of demand in heavily supplied markets has led to lower
realization and translated into weak EBITDA margins for the company.
In 4QFY20, demand for polymer and polyester was lower by 5% YoY. We expect
domestic polymer demand to be healthy, driven by policy push and budgetary
allocation for infrastructure and agri sectors.
In the current challenging operating environment, RIL’s ability to optimize
between feedstock and sales mix provides an edge in improving its
performance.
We believe that India is likely to see a revival in PVC demand post monsoons
driven by the infrastructure and irrigation sectors.
E&P – hard hit by lower crude prices
Gas production from KGD6 stood at 0.9mmscmd in 4QFY20, lower than the
1.53mmscmd in 3QFY20. CBM production stood at 0.97mmscmd with 250+
wells flowing steady production. US shale production was up 10% QoQ to
26.3bcfe (+39% YoY).
R-cluster is progressing as planned and expects first gas starting from 2QFY21
(subject to lifting of the lockdown). Total production from KG basin is expected
to achieve a peak of ~28mmscmd by FY24E.
CBM phase II development is in progress with 67 wells under implementation.
Ramp-up from existing and new wells are being planned.
2 May 2020
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REFINING: Better GRM and throughput led by feedstock flexibility
GRM at USD8.9/bbl v/s benchmark GRM of USD1.2/bbl
Exhibit 30: RIL’s premium over benchmark at record high of USD7.7/bbl in 4QFY20
2.9
2.5
2.9
2.6
2.9
2.6
RIL's GRM premium over SG
2.9
2.3
2.2
1.5
1.6
2.3
3.0
Brent
3.2 less Dubai
2.3
2.2
-
2.5
0.9
Arab L-H
1.4
1.8
1.5
1.5
0.7
2.3
1.3
3.1
0.9
0.5
(0.1)
(0.2)
(0.1)
6.5
5.0
4.1
5.1
5.5
3.7
4.3
4.0
4.5
3.4
4.5
5.0
2.1
2.9
7.6
7.7
Exhibit 31: Standalone refining EBIT improved YoY and declined marginally QoQ
Refining EBIT (INRb)
EBIT Margins (%)
13.4
11.4 11.5
10.8 11.0
9.8
9.5
7.5
6.4
6.3
5.9
5.6
5.8
6.4
7.5
8.4
66
59
61
63
64
65
61
56
52
52
49
40
44
49
59
57
Exhibit 32: 4QFY20 GRM at USD8.9/bbl; premium of USD7.7/bbl
Singapore GRM
Premium / (Disc)
11.9 12.0 11.6
11.5
11.5
11.0 10.5
10.1 10.8
9.5
8.8
3.7
4.3
5.5
4.0
5.1
4.1
6.5
4.5
3.4
5.0
4.5
8.3
7.3
7.0
6.7
6.4
6.4
6.1
6.0
5.1
5.0
4.3
RIL GRM
8.2
5.0
3.2
8.1
2.1
6.0
9.4
2.9
7.6
6.5
1.6
7.7
1.2
9.2
8.9
Exhibit 33: Refinery throughput up 14% YoY to 18.3mmt, utilization at 118%
Refinery Thr' put (mmt)
Utilization (%)
117
116
116
115
114
114
113
113
108
108
107
103
16.8
18.0
17.8
17.5
17.5
18.1
17.7
16.7
16.6
17.7
18.0
16.0
117
113
108
118
17.5
16.7
18.1
18.3
Source: Company, MOFSL
2 May 2020
19
 Motilal Oswal Financial Services
Reliance Industries
PETROCHEM: EBIT margin takes a big hit due to weak Petchem realizations
Standalone EBIT down 41% YoY; EBIT share contracts to 44%
Exhibit 34: Standalone EBIT down 41% YoY, with margin contracting YoY to 14.6%
Petchem EBIT (INRb)
14.9
16.3
15.5
13.7
16.5
18.3
17.4
17.2
EBIT Margins (%)
19.9 18.5
17.6
18.9
20.4
20.0
16.1
14.6
29
35
34
35
40
49
57
63
77
80
80
78
74
75
58
46
Source: Company, MOFSL
Exhibit 35: Petrochem production volume up 4% YoY and flat QoQ
Petchem production (mmt)
6.1
6.4
6.2
6.2
6.9
7.9
8.4
9.2
9.2
9.4
9.7
9.4
8.7
9.9
9.9
9.8
Source: Company, MOFSL
Exhibit 36: Petchem share in 4QFY20 contracted to 44% in standalone EBIT
Petrochem
Refining
48
41
E&P
40
Others
1
68
62
65
64
62
57
52
38
1
34
1
37
0
39
0
50
0
55
30
37
35
35
39
43
48
55
61
62
61
65
62
60
49
44
Source: Company, MOFSL
2 May 2020
20
 Motilal Oswal Financial Services
Reliance Industries
E&P: KG-D6 production declines
Domestic E&P production was at 4.05bcfe, down 64% QoQ
Exhibit 37: KG-D6 gross production averaged 0.9mmscmd in 4QFY20
KG-D6 Gross Gas (mmscmd)
8.7 7.7
7.5 7.4
6.4 5.5
5.0 4.3 4.1
3.7
1.9 1.8 1.8 1.7 1.5 0.9
Source: Company, MOFSL
Exhibit 38: RIL production up 39% YoY, 10% 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
23.9 26.3
23.8 21.2
20.9 18.9
17.8 19.9
Source: Company, MOFSL
Standalone and Consol. estimates change
Exhibit 39: Summary of EBITDA and PAT changes
Standalone (INR b)
EBITDA
% change
PAT
% change
Consol. (INR bn)
EBITDA
% change
PAT
% change
FY21
441
-1%
204
-13%
902
-2%
421
0%
New
FY22
611
-14%
325
-22%
1,197
-10%
622
-3%
FY21
444
236
Old
FY22
707
416
922
422
1,328
645
Source: Company, MOFSL
2 May 2020
21
 Motilal Oswal Financial Services
Reliance Industries
Exhibit 40: RIL standalone- Key assumptions
Key Metrics
Exchange Rate (INR/USD)
Refining
Capacity (mmt)
Production (mmt)
Capacity Utilization (%)
GRM (USD/bbl)
Singapore GRM
Premium/(disc)
RIL GRM
E&P
Gas Production (mmscmd)
Oil Production (kbd)
Petchem
Net sales (mmt)
EBITDA/mt (USD)
Pricing
Brent Oil (USD/bbl)
Wellhead Gas Price (USD/mmbtu)
Consol. EPS
FY15
61.2
FY16
65.4
62.0
69.5
112%
7.5
3.3
10.8
8.4
4.9
24.7
88
48
4.2
46.9
FY17
67.1
62.0
70.1
113%
5.8
5.2
11.0
7.8
3.4
24.9
102
49
3.2
47.2
FY18
64.5
62.0
70.0
113%
7.3
4.4
11.6
5.3
2.1
32.4
122
58
3.4
56.9
FY19
70.0
62.0
68.3
110%
4.9
4.4
9.3
2.9
0.7
37.7
141
64
3.4
62.8
FY20
70.8
62.0
70.6
114%
3.8
5.1
8.9
1.5
-
38.3
115
61
3.3
68.1
FY21E
72.5
62.0
61.3
99%
5.0
3.0
8.0
0.8
-
35.0
95
40
4.2
66.4
FY22E
73.3
62.0
70.0
113%
6.0
4.0
10.0
0.8
-
40.0
105
50
4.2
98.1
62.0
67.9
110%
6.4
2.5
8.8
12.2
6.6
22.0
87
86
4.2
37.2
Source: Company, MOFSL
Exhibit 41: RIL – Segmental EBITDA break-up (INR b)
Segmental EBITDA (INRb)
Refining
Petchem
E&P
Total
Segmental EBITDA share (%)
Refining
Petrochemicals
E&P
Total
FY15
187
118
37
342
55
35
11
100
FY16
265
143
28
436
61
33
6
100
FY17
284
171
10
465
61
37
2
100
FY18
277
256
11
544
51
47
2
100
FY19
228
372
14
614
37
61
2
100
FY20
242
309
4
556
44
56
1
100
FY21E
162
277
(9)
430
38
64
(2)
100
FY22E
263
346
(10)
600
44
58
(2)
100
Source: Company, MOFSL
Exhibit 42: RIL - Standalone FCF turns positive in FY20 (INR b)
INR bn
Free Cash Flow
1,009
455
182
584
264
14
-84
-183
2 May 2020
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 Motilal Oswal Financial Services
Reliance Industries
Reliance Industries – Story in charts
Exhibit 43: RIL’s standalone earnings
Exhibit 44: Return ratios
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 45:
FY21 refinery throughput is adjusted for 1.5 months of shutdown owing to lockdown
Source: Company, MOFSL
Exhibit 46:
Expect Petchem EBITDA contribution to increase going forward, followed by refining
Source: Company, MOFSL
2 May 2020
23
 Motilal Oswal Financial Services
Reliance Industries
Reliance Industries – Story in charts
Exhibit 47: Segmental EBITDA
break-up
(%) – E&P a
dampener, refining and petchem outshine
Exhibit 48: Expect E&P production to decline (mmscmd)
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 49: RIL refining margins to normalize to ~USD10/bbl
Exhibit 50: Expect petrochem EBITDA to improve in FY22
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 51: Dividend payout
Source: Company, MOFSL
2 May 2020
24
 Motilal Oswal Financial Services
Reliance Industries
Reliance Jio Infocomm – Financials and valuations
Consolidated - Income Statement
Y/E March
Total Income from Operations
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT after EO Exp.
Total Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY15
0
NA
0
NA
0
NA
0
0
0
0
0
0
0.0
0
0
NA
NA
FY16
0
0.0
0
NA
0
NA
0
0
0
0
0
0
34.4
0
0
-31.7
NA
FY17
0
-50.0
0
NA
0
NA
0
0
0
0
0
0
34.5
0
0
98.6
NA
FY18
202
NA
134
66.6
67
33.4
36
32
20
0
11
4
34.8
7
7
LP
3.6
FY19
388
92.7
237
61.1
151
38.9
64
87
41
0
46
16
34.9
30
30
310.0
7.6
FY20
543
39.9
327
60.3
216
39.7
74
142
66
1
76
21
27.2
56
56
87.7
10.2
FY21E
722
32.9
376
52.0
346
48.0
101
246
25
4
225
60
26.6
165
165
196.7
22.9
(INR b)
FY22E
810
12.2
363
44.8
447
55.2
111
335
34
17
319
87
27.1
233
233
41.0
28.7
Consolidated - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Appl. of Funds
E: MOFSL Estimates
FY15
301
-1
301
239
539
10
1
9
723
8
80
0
0
80
281
0
281
0
-201
539
FY16
450
-78
372
884
1,257
12
2
9
1,061
8
197
0
0
197
19
0
19
0
178
1,257
FY17
450
259
709
1,244
1,953
14
4
10
1,780
9
211
0
0
210
56
0
55
1
155
1,953
FY18
450
579
1,029
1,438
2,468
1,595
40
1,555
700
10
272
9
7
256
70
31
34
5
202
2,468
FY19
450
-46
404
1,479
1,883
1,444
104
1,340
346
13
259
7
4
247
74
33
41
1
185
1,883
FY20
450
1,260
1,710
421
2,130
1,772
138
1,634
213
25
545
16
75
454
152
47
104
1
394
2,265
FY21E
450
1,425
1,875
421
2,295
2,224
278
1,946
0
11
677
40
286
351
154
46
94
14
523
2,480
(INR b)
FY22E
450
1,657
2,107
421
2,528
2,442
390
2,053
0
11
806
44
376
385
157
45
97
16
649
2,713
2 May 2020
25
 Motilal Oswal Financial Services
Reliance Industries
Reliance Jio Infocomm – Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
FCF per share
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY15
0.0
0.0
10.0
0.0
0.0
FY16
0.0
0.0
8.3
0.0
0.0
-4.9
-0.1
NA
NA
0.0
0.0
274
0
0.3
-14.0
0.8
0.0
0.0
7.7
0.0
0.0
913
0
10.3
-18.0
2.4
FY17
0.0
0.0
15.7
0.0
0.0
-9.3
-0.1
0.0
-0.2
0.0
0.0
3,650
0
3.8
-47.2
1.7
FY18
0.2
1.0
22.9
0.0
0.0
-7.2
0.8
0.9
2.1
0.1
0.1
17
56
3.9
1.5
1.4
FY19
0.7
2.1
9.0
0.0
0.0
-8.3
4.1
2.6
3.5
0.3
0.2
7
31
3.5
2.1
3.6
FY20
1.2
2.9
38.0
0.0
0.0
-7.6
5.3
5.2
6.2
0.3
0.2
11
32
3.6
2.1
0.2
FY21E
3.7
5.9
41.7
0.0
0.0
4.9
9.2
8.3
9.5
0.3
0.3
20
23
4.4
9.7
0.1
FY22E
5.2
7.6
46.8
0.0
0.0
2.4
11.7
10.7
11.8
0.3
0.3
20
20
5.1
10.0
0.0
Consolidated - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Eq/Pref.Shares
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY15
0
0
0
0
-28
-28
0
-28
-95
-123
-5
0
-101
71
72
-13
0
0
129
0
0
0
FY16
0
0
0
0
-43
-44
0
-44
-176
-220
0
0
-177
150
103
-33
0
0
220
0
0
0
FY17
0
0
0
0
-34
-34
0
-34
-385
-419
0
0
-386
337
141
-58
0
0
420
0
0
0
FY18
11
36
20
-2
-29
36
0
36
-358
-322
-1
0
-359
313
102
-85
0
0
330
7
0
7
FY19
46
64
41
-10
-75
66
0
67
-438
-372
0
0
-438
0
460
-92
0
0
368
-3
7
4
FY20
76
74
66
-12
-37
168
-2
166
-508
-342
-9
4
-512
1,250
-538
-103
0
0
609
262
0
262
FY21E
225
101
25
-60
116
407
11
418
-200
218
14
8
-178
0
0
-25
0
0
-25
216
71
286
(INR b)
FY22E
319
111
34
-87
-36
342
-17
324
-218
106
0
22
-196
0
0
-34
0
0
-34
94
282
376
2 May 2020
26
 Motilal Oswal Financial Services
Reliance Industries
Reliance Retail – Financials and valuations
Income Statement
Y/E March
Total Income from Operations
Change (%)
Total Expenditure
% of Sales
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY15
FY16
FY17
FY18
FY19
FY20
FY21E
(INR b)
FY22E
34.6
93.1
135
6.9
127
161
26.9
95.1
8
4.9
5
183
13.8
95.0
9
5.0
6
264
44.2
95.6
12
4.4
8
515
94.6
95.4
24
4.6
19
1019
98.1
94.2
59
5.8
53
1202
1112
92.5
90
7.5
84
17.9
1460
1369
93.8
91
6.2
84
21.5
1965
1830
153
174
253
491
960
3
2
1
0
1
4
4
3
1
0
0
2
5
5
4
1
0
0
3
7
8
4
1
0
0
6
6
6
1
0
6
4
1
0
7
4
2
0
8
4
2
0
19
19
48
48
81
81
82
82
126
126
17
34.9
31
31
NA
3.1
21
25.2
61
61
NA
5.1
21
25.2
62
62
NA
4.2
32
31.1
3
3
-9.4
1.7
38.2
3
3
9.9
1.6
43.6
4
4
40.4
1.6
33.7
12
12
192.8
2.4
25.2
94
94
NA
4.8
Balance Sheet
Y/E March
Equity Share Capital
Eq. Share Warrants & App. Money
Preference Capital
Total Reserves
Net Worth
Total Loans
Deferred Tax Liabilities
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Other Current Liabilities
Provisions
Net Current Assets
Appl. of Funds
FY15
50
0
0
2
52
17
-6
63
33
13
21
4
5
51
39
2
2
8
17
13
4
0
34
63
FY16
50
0
0
11
61
11
-10
62
35
14
20
5
5
64
52
2
0
9
33
28
5
0
32
62
FY17
50
0
0
18
68
0
-9
60
40
17
23
7
8
70
51
7
3
9
48
39
9
0
22
60
FY18
50
0
0
41
91
34
-6
119
53
21
32
41
5
156
105
22
2
28
116
82
33
0
41
119
FY19
50
0
0
76
126
128
0
254
98
26
72
25
36
211
113
43
3
52
90
41
48
0
121
254
FY20
50
0
0
137
187
44
0
231
73
33
41
25
5
367
165
60
67
75
207
131
75
1
160
231
FY21E
50
0
0
199
248
44
0
293
83
40
43
25
5
480
210
87
92
91
260
169
91
1
219
293
(INR b)
FY22E
50
0
0
293
343
44
0
387
94
48
46
25
5
618
248
102
160
108
308
199
108
1
310
387
2 May 2020
27
 Motilal Oswal Financial Services
Reliance Industries
Reliance Retail – Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Leverage Ratio (x)
Current Ratio
Interest Cover Ratio
Net Debt/Equity
FY15
0.6
1.2
10.4
0.0
0.0
5.3
5.4
6.7
4.8
2.6
88
5
29
3.0
3.3
0.2
FY16
0.6
1.3
12.3
0.0
0.0
5.3
5.3
7.0
5.3
3.0
105
4
55
2.0
5.0
0.1
FY17
0.9
1.6
13.7
0.0
0.0
6.6
6.7
9.6
6.6
4.4
70
10
54
1.5
10.3
-0.2
FY18
2.5
3.4
18.2
0.0
0.0
15.7
13.5
22.8
9.7
4.3
74
16
58
1.4
19.1
0.3
FY19
6.3
7.5
25.2
0.0
0.0
29.0
18.7
26.6
10.4
4.0
40
16
15
2.3
8.7
0.7
FY20
12.2
13.5
37.4
0.0
0.0
39.0
26.2
38.9
16.4
5.2
50
18
40
1.8
23.6
-0.1
FY21E
12.3
13.8
49.8
0.0
0.0
28.3
24.5
41.4
17.6
5.0
52
22
42
1.8
23.6
-0.2
FY22E
18.9
20.4
68.6
0.0
0.0
31.8
28.5
52.1
21.0
5.1
46
19
37
2.0
35.8
-0.4
Standalone - Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation
Interest & Finance Charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
Others
CF from Operating incl EO
(Inc)/Dec in FA
Free Cash Flow
(Pur)/Sale of Investments
Others
CF from Investments
Issue of Shares
Inc/(Dec) in Debt
Interest Paid
Dividend Paid
Others
CF from Fin. Activity
Inc/Dec of Cash
Opening Balance
Closing Balance
FY15
4
3
1
-1
-4
4
0
4
-4
0
1
1
-1
0
23
-2
0
-25
-3
-1
2
2
FY16
5
3
1
-1
2
10
0
11
-4
6
0
0
-5
0
-6
-1
0
0
-7
-1
2
0
FY17
8
4
1
-1
11
22
1
22
-8
14
-3
0
-11
0
-8
-1
0
0
-9
2
0
3
FY18
19
4
1
-5
-15
4
1
5
-48
-43
3
-4
-49
10
34
-1
0
0
43
-1
3
2
FY19
48
6
-1
-10
-33
11
6
17
-47
-30
-7
0
-54
4
94
-6
0
-23
68
32
2
3
FY20
81
6
4
-21
25
95
-1
94
25
119
30
1
56
0
-84
-4
0
0
-87
64
33
67
FY21E
82
7
4
-21
-34
38
-2
37
-10
27
0
2
-8
0
0
-4
0
0
-4
25
97
92
FY22E
126
8
4
-32
-23
82
-2
81
-11
70
0
2
-9
0
0
-4
0
0
-4
68
122
160
2 May 2020
28
 Motilal Oswal Financial Services
Reliance Industries
Reliance Industries – Standalone Financials and valuations
Standalone - Income Statement
Y/E March
Total Income from Operations
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income
PBT bef. EO Exp.
EO Items
PBT after EO Exp.
Total Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Margin (%)
FY15
3,290.8
-15.6
316.0
9.6
84.9
231.1
23.7
87.2
294.7
0.0
294.7
67.5
22.9
227.2
227.2
3.3
6.9
FY16
2,331.6
-29.1
393.5
16.9
85.9
307.6
25.6
78.2