Reliance Industries Ltd. share price target

We envisage that RIL will be a beneficiary of IMO regulations. But (1) Reduction in heavy crude oil supply post US sanctions, (2) Global refining capacity adds over CY19/20 exceeding expected incremental demand, and (3) Slowdown in petchem demand as a result of the US-China spat will weigh on RIL's refining and petchem business. Our TP is at Rs 1,302/sh (7.5.0x EV/e for standalone refining, 9x EV/e for petchem, Rs 6.0/sh for domestic E&P, 2x EV/invested capital for Shale, 20x EV/e for Retail and 10x EV/e for Telecom). Maintain NEU. We maintain NEUTRAL on RIL after a lower than expected performance in 1QFY20. The EBITDA miss was led by weak GRM and petchem volumes.

Reliance Industries' Q1FY20 result was a beat to our estimates owing to strong performance by Digital Services (Jio) and Retail segment. Revenue grew by 21.9% YoY to Rs1.5 tr whereas EBITDA and PAT growth was much lower at 3.2%/5.9% YoY to Rs213 bn/Rs 100bn impacted by lower petchem volume and lower refinery profits. Petchem margin of 20% came above our forecast of 18% whereas GRM was in-line to our forecast at US$8.1/bbl. Organised Retail business and Digital Services business segmental profit increased 66.2% and 79.6% to Rs18/31 bn, better than our forecast. We continue to maintain our forecast and maintain our target price of Rs1,400....

22 July 2019 USD8.5/bbl), as against USD10.5/bbl in 1QFY19 and USD8.2/bbl in 4QFY19. Premium over Singapore complex stood at USD4.6/bbl. Petrochem EBIT declined 5% YoY/QoQ to INR74b, primarily driven by lower volumes. However, implied EBITDA (USD/mt) was higher at USD424/mt v/s USD412/mt in 4QFY19 (USD437/mt in 1QFY19), despite a contraction in most petrochem margins, due to better optimization of feedstock. Gas production from KG D6 stood at 1.76mmscmd in the quarter, down from 1.82mmscmd in 4QFY19. RJio added 8.2m net subscribers, indicating a relative slowdown in the pace of addition over the past few INR126).

Reliance Industries' (RIL) Q1 FY20 EBITDA marginally beat estimates at Rs 213bn (+3% YoY, +2.3% QoQ)

RIL is creating value via (1) Transition from a low-multiple refining business to the consumer-oriented, digitally fired R-Jio, (2) Monetisation and deleveraging achieved by hiving off fiber and tower assets, (3) GRMs rising post the new IMO regulations (est. USD 9.2-12.0/bbl over FY19-21E). Our SoTP is Rs 1,535/sh (7.5x EV/e for refining, 9x EV/e for petchem, Rs 6.0/sh for domestic E&P, 1x EV/capital for Shale, 25x EV/e for Retail and 10x EV/e for Telecom). We upgrade RIL to BUY after the 4QFY19 beat. We believe RIL will be the biggest beneficiary of the IMO regulations, as it is the most complex refiner globally. Hiving off R-Jios optical fiber and tower assets will unlock value by reducing attributable consolidated debt.

Reliance Industries' Q4FY19 operating profit were slightly above expectations owing to strong petchem margins and higher than expected other income. Lower petchem volume and lower refinery profits led to a 2.3% QoQ fall in EBITDA. Petchem margin of 18.8% and GRM of US$8.2/bbl were above our estimates of 17.5% and US$8/bbl respectively. Organised Retail business and Digital Services business segmental profit...

Reliance JIO reported flat q-o-q net profit; robust 14.5% q-o-q growth in EBITDA for Retail business: Reliance JIO (RJIO Digital Services business) reported EBITDA margin of 39% (EBITDA of Rs. 4,329 crore) and PAT of Rs. 840 crore in Q4FY2019, up marginally by 1.1% q-o-q. Average revenue per user (ARPU) declined 2.9% q-o-q to Rs. 126/subscriber per month and net subscriber...

Operating profit before other income and depreciation increased 12.7% to Rs 20,832 crore from Rs 18,477 crore in the corresponding period of the previous year. The growth in operating profit was led by strong operating performance in Petrochemicals, Retail and Digital services...

We remain positive on Jio's wireless operations. Jio was already capitalizing a portion of its opex. The InvIT transaction raises additional concerns. Till now it was an interplay between PL (opex) and BS (capitalization of expenses). Now it will be off-balance sheet on InvITs. In our view, investors should look beyond the debt reduction and focus on incremental monetization options for the business tariff hikes and/or ancillary revenues. Jios 4QFY19 was marginally weak. To abate investors concerns of persistent capex, cash burn and rising debt, Jio/RIL finally re-engineered its BS with transfer of fiber and tower assets to SPVs majority owned by InvITs. This will lead to ~Rs 600bn de-leveraging for Jio. We value Jio at EV of Rs 2.9tn at 10x FY21E EV/EBITDA (Rs 490/sh of RIL).

RJio asset hive-off, retail save the day; cut to ADD on soft upside Reliance Industries' (RIL) Q4FY19 EBITDA was in line at Rs 208bn (+13% YoY, 2% QoQ). Key highlights were higher GRMs at US$ 8.2/bbl (US$ 7.7 est.) and retail business EBITDA at Rs 19.2bn (+77% YoY). RJio's subscriber traction remains robust, while the transfer of ~Rs 1.3tn in assets to the InvIT has pared debt. We raise FY20E/FY21E earnings by 5.4%/13.2% to bake in stronger RJio & retail profitability and roll over to a new Mar'20 TP of Rs 1,510 (vs....