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31 July 2020
1QFY21 Results Update | Sector: Technology
TP: INR2,250 (+7%)
O2C and retail businesses suffer due to COVID-19 lockdowns
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Financials & Valuations (INR b)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
13881.6 / 184.4
2199 / 867
Reliance Industries’ (RIL) 1QFY21 consolidated/standalone business EBITDA were
down 21%/48% YoY due to weak performance in refining and petchem businesses,
followed by shutdown of Reliance Retail stores due to the lockdown.
RJio’s revenue was up 11.6% QoQ (8.5% beat) on the back of healthy ARPU
growth. This could be attributed to the price hike taken in Dec’19 along with
Reliance Retail’s revenue declined 17% YoY due to 50% of its stores being shut and
29% operating partially during the lockdown. However, grocery and the
connectivity businesses showed resilience.
During the quarter, RIL operated refinery and petrochemical units at ~90% despite
much lower utilization rates of other Indian peers, enjoying the benefits of its
integrated Oils-to-Chemicals (O2C) business model. However, RIL’s guidance for
the O2C business highlights near-term caution amidst challenges in terms of
demand recovery (especially for refining) and the huge supply glut (especially for
petchem), which are likely to keep margins under pressure.
Using SOTP, we value refining and petrochemical segment at 7.5x to arrive at a
valuation of INR545/share for the standalone. We have ascribed an equity
valuation of INR1,125/share to RJio and INR580/share to Reliance Retail. Reiterate
Buy with target price of INR2,250/share.
1QFY21 snapshot – EBITDA miss on both consol. and standalone
Shareholding pattern (%)
FII Includes depository receipts
Reliance Industries’ (RIL) 1QFY21 consolidated business EBITDA was down
21% YoY to INR168.8b (19% below our est.) due to weak performance in
refining/petchem businesses, followed by shutdown of Reliance Retail stores
due to the lockdown. PBT (before exceptional) declined 43% YoY to
INR82.2b. The company has recognized exceptional gain of INR49.7b
(consol.) related to its deal with BP for the Petro Retail business. Tax rate for
the quarter was lower at 2% (v/s est. 25%) due to planned restructuring of
the O2C business in the current year. Reported PAT came in at INR132.5b
while adj. PAT (for exceptional item) stood at INR83.8b (v/s est. -16% and -
Standalone EBITDA was down 48% YoY to INR71.3b (v/s est. -38%) due to
lower GRMs (at USD6.3/bbl) and petchem margins (implied EBITDA/mt
declined 55% YoY to USD64). PBT before exceptional was down 64% YoY to
INR43.9b. The company has recognized exceptional gain of INR44.2b
(standalone) related to its deal with BP for the petro-retail business. RIL has
recognized deferred tax credit during the quarter (tax rate at -10.8%) with
reported PAT at INR97.5b. Adj. PAT (for exceptional item) stood at INR48.6b
(v/s est. -19% and -46% YoY).
RIL has revised useful life of the O2C expansion assets to 50 years from the
respective dates of commissioning with effect from 1
Swarnendu Bhushan- Research analyst
Aliasgar Shakir – Research analyst
Sarfraz Bhimani - Research Analyst
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.