Reliance Industries Ltd. share price target

In Apr'19, we had downgraded RIL due to concerns about its core refining and petrochem segments. The stock has declined by ~20% since then. While we maintain our thesis that refining and petrochem would continue facing headwinds, the reduction in debt would certainly act as a rerating trigger. In subsequent media interaction the management suggested that oil-tochemicals,' could include refining, petrochemical and auto fuel retailing. This could be carved out into a division where Aramco will have an economic...

Chairman Mukesh Ambani's FY19 AGM speech envisages: (a) deleveraging by FY21 through stake sales, (b) enhancing shareholder value, and (c) expanding RJio's value proposition.

Reliance Industries' (RIL) FY19 Annual Report spells out its vision across its diversified businesses.

Reliance registered a strong growth in Q1FY20 topline (+21.3% YoY to Rs. 161,349cr) primarily driven by 47.5% YoY growth in Retail segment (representing 18.7% of revenue) and 54.5% growth in Digital Services (~7.3% of revenue). This is only partially offset by weakness in Petrochemicals segment (-6.6% YoY; accounted for 18.4% of revenue), and Oil and Gas segment (-35.5% YoY; ~0.4% of revenue) impacted by lower production volumes, trade tension and weak demand growth. EBITDA margin declined 169 bps with Oil and Gas segment leading the declines (-11.6% YoY). EBIT margins fell 92bps driven by the fall in Refining and Marketing segment margins (113bps YoY) partially offset by the improved margins in Digital Services (+289bps...

RIL achieved net sales of Rs 161349 crore, an increase of 21% as compared to Rs 133069 crore 48% YoY respectively. Higher refinery throughput on YoY basis, contributed to the increase in revenue for the Refining business. Exports (including deemed exports) from RIL's India operations were lower by 4.5% at Rs 50,158 crore as against Rs 52,501 crore in the corresponding period of the previous year. Lower price realization across petrochemicals and refining products, led by 7.4% YoY decrease in Brent oil price, and lower volumes of fibre intermediates contributed to the decline in exports....

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.

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' 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....

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.