Reliance Industries Ltd.

Rs 913.00– BUY Target 1289.00 ( Sector Oil & Gas)

Busines Overview
Reliance Industries is India’s largest private sector company on all
major financial parameters. The company operates world-class
manufacturing facilities across the country at Allahabad, Barabanki,
Dahej, Hazira, Hoshiarpur, Jamnagar, Nagothane, Nagpur, Naroda, Stock Details
Patalganga, Silvassa and Vadodara. Reliance Industries’ activities NSE Code RELIANCE

span hydrocarbon exploration and production, petroleum refining Bse Code 500325
and marketing, petrochemicals, retail and telecommunications.
Market Cap. 282102.00
The petrochemicals segment includes production and marketing
operations of petrochemical products. The refining segment includes Free Float (%) 54.00%

production and marketing operations of the petroleum products. Face Value 10

The oil and gas segment includes exploration, development and

Book Value 456.94
production of crude oil and natural gas. The other segment of the
52-week High / Low 959/507
company includes textile, retail business and special economic zone
(SEZ) development.Reliance Industries Ltd. reported net profit of ₹
94,450 mln, above market expectation. However, GRM’s of $11.6/bbl Major Shareholder
were in-line with market expectations. It outperformed benchmark Promotors 46.2%
Singapore Complex margins by $4.4/bbl. Consolidated revenue
increased by 22% YoY to ₹ 10,25,000mlnduring the quarter ending DII 11.3%

December asagainst ₹ 8,41,890 mln in year-ago period.

FII 26.2%

Forward- Looking Statement: The report contains forward-looking

Public & Others 16.2%
statements, identified by words like ‘plans’, ‘expects’, ‘will’, ‘anticipates’,
‘believes’, ‘intends’, ‘projects’, ‘estimates’ and so on. All statements that
address expectations or projections about the future, but not limited to the
Company’s strategy for growth, product development, market position,
expenditures and financial results, are forward-looking statements.
Since these are based on certain assumptions and expectations of future
events, the Company cannot guarantee that these are accurate or will
be realised. The Company’s actual results, performance or achievements
could thus differ from those projected in any forward-looking statements.
The Company assumes no responsibility to publicly amend, modify
or revise any such statements based on subsequent developments,
information or events. The Company disclaims any obligation to update
these forward-looking statements, except as may be required by law.
 Reliance Industries Ltd.

While diversification into the newer markets will provide scale,

Financial and Valuation Snapshot
it will also result in improved profitability. We also see SIL as a
strong re-rating candidate, as the expected increase in capacity FY 2017 FY 2018E FY 2019E
over the next few years should help it achieve significant scale
Net Sales 305382.00 389372.46 496583.00
benefits. SIL targets to increase its cement grinding capacity
from 4.1mt now to 8.2mt over the next 30 months by adding
Growth (%) 11.45% 27.50% 27.53%
one more line of clinker unit at its existing location, as well as
split grinding units of 2mt each in Kutch and Surat.
EBITDA 45502.00 47230.88 60235.63

Valuation & Recommendation: -The profitability of the Reliance

Jio business and a higher volume growth in the petrochemicals Margin (%) 15% 12% 12%

business were the primary reasons driving the profitability of the

company. Going forward, we believe the performance of both PAT 29901.00 47386.43 49441.90

these segments will further boost the operating income of the

company. The recently commissioned off gas cracker complex Margin (%) 10% 12% 10%

will help to produce higher value-added polymer derivatives

from the lowestcost fossil fuels resulting in lower costs leading EPS Diluted 50.60 60.00 83.00

to superior operating income. With the Reliance Jio business

exhibiting a strong performance for the quarter, we believe the PE 18.50 13.50 10.50

company will be able to further grow its 4G smartphone base

at a robust pace, and along with its Jio services, we expect the EV/EBITDA 12.65 10.54 9.53

average revenue per use (ARPU) of the business to gradually

increase). ROE (%) 13.2 13.8 14.2

Going forward, these projects are expected to generate strong

Stock Price Graph
free cash flows, whose full performance will be likely seen FY19
onwards. 28-10-2017 929.85

We recommend a Buy on Reliance with a target price 28-11-2017 943.35

of Rs 1289.00, based on 18x FY19E EPS implying
38-40% return. 28-12-2017 919.10

28-01-2018 964.50

28-02-2018 956.00
 Reliance Industries Ltd.

The analysis shows that the PE (x), EPS (x) and Ev/Ebitda (x) are less than the industry average. Hence Reliance
has growth potentials. Hence, we can come to a Buy Recommendation

SENSITIVITY ANALYSIS

WACC

1289.08 7.50% 7.91% 8.50% 9.00% 10.00%

5.00% 731.02 545.65 354.86 237.04 71.69

5.50% 1042.57 765.94 500.27 345.02 137.56

Growth Rate
6.00% 1561.81 1101.57 703.85 488.99 219.90

6.50% 2600.30 1675.24 1009.21 690.55 325.76

7.00% 5715.76 2879.32 1518.15 992.90 466.92

Highlights and Key Events: -

RIL’s downstream hydrocarbon businesses delivered a stellar performance in FY 2016-17. Refining busi-
ness continued to register double digit Gross Refining Margin (GRM) and outperformed benchmark Sin-
gapore GRMs. Refining business was supported by stable middle distillate cracks, benign global demand
growth and optimised crude sourcing. Favourable naphtha cracking economics, firm domestic demand
and higher volumes in polyester chain underpinned record earnings from the Petrochemical business.
 Reliance Industries Ltd.

RIL progressed completion of the ongoing hydrocarbon projects with the phase wise commissioning of
Paraxylene plant at Jamnagar, making it the 2nd largest producer of PX globally. During the year, RIL com-
pleted the world’s largest and most complex ethane sourcing project. It commissioned ethane receipt
and handling facilities at its Dahej manufacturing facilities in a record time of less than three years. The
Refinery Off Gas Cracker (ROGC) and downstream projects as well as gasification linked to Domestic Tariff
Area refinery achieved the installation and mechanical completion during the year and pre-commission-
ing and start-up activities are in full swing. The installation and mechanical completion for the gasification
linked to RIL’s SEZ refinery has also been substantially achieved. The completion of the hydrocarbon capex
cycle will significantly enhance RIL’s cash flows and impart a high degree of stability to its earnings stream.

Comparable Company Analysis EPS P/E (x) EV / EBITDA (x)

Net
Price # of Debt Cash Market Enterprise EBITDA
Income FY2017A FY2018E FY2019E FY2017A FY2018E FY2019E FY2017A FY2018E FY2019E
(INR) shares (INR ) (INR ) Cap (INR ) Value (INR ) (INR )
(INR )

integrated Oil & Gas Sector

IOCL 375.80 4,855 58,830.03 409.75 18,24,509 18,82,929 27,955.80 19,849.49 41.88 50.25 65.45 9.0x 7.5x 5.7x 67.4x 68.3x 70.2x

BPCL 428.50 216 31,473.04 1,884.54 92,556 1,22,145 13,699.61 8,720.94 66.51 71.25 77.5 6.4x 6.0x 5.5x 8.9x 12.3x 15.3x

HPCL 378.50 152 18,032.18 136.40 57,532 75,428 11,197.42 8,235.82 81.07 89.25 95.25 4.7x 4.2x 4.0x 6.7x 9.5x 12.5x

MRPL 119.90 175 13,259.58 2,143.83 20,983 32,098 3,456.56 3,472.64 19.81 24.25 29.25 6.1x 4.9x 4.1x 9.3x 14.3x 18.5x

Heidelberg 168.70 2266 575.19 14.20 3,82,274.2 3,82,835.2 113.63 76.21 3.36 4.25 4.85 35.3x 39.4x 41.3x 8.6x 9.2x 10.0x

Mean 52.3 58.8 66.9 6.5 5.7 4.8 23.1 26.1 29.1

Median 54.2 60.8 71.5 6.2 5.5 4.8 9.1 13.3 16.9

956.0 295.1 2,03,813 4,36,475 2,82,102 49,440 99,217 29,901 101.3 160.6 156.8 22.8 19.0 14.6 1.65 1.04 1.00

Reliance
Industries
Ltd.

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 Reliance Industries Ltd.

“Delivering superior performance in today’s volatile and global environment requires sound strategy and
disciplined execution. Reliance achieved a number of milestones and performance records – demonstrat-
ed by solid earnings growth, EBITDA growth and margin expansion. Reliance has generated record cash
profit of `42,800 crore (US$6.6 billion) for the year. Across its integrated portfolio, Reliance is executing a
number of strategic actions to deliver maximum value from each business. Reliance is enhancing its cost
position and value of its integration between refining and petrochemicals business and at the same time
investing in new growth platforms of retail and digital services. Reliance is well on its way to maximise
returns for shareholders as all its investments in projects and new initiatives come to fruition this year.
During the year, Reliance has transitioned its financial statements reporting in compliance with Ind AS
notified by the Ministry of Corporate Affairs.

The estimated cost of the expansion plan will be around Rs 1250 crore, out of which around Rs. 800
crores will be funded from borrowings. The Company has received sanctions from banks and financial
institutions for the same.

Domestic Scenerio: - Overall, petrochemical demand growth was impacted in the short-term with re-
duced cash circulation. Demand across product categories returned to normalcy by the end of the year.
RIL’s deep rooted connect with its customers proved to be useful during this period. The business acted
proactively to ensure an optimum product mix to meet the customer requirements. While managing the
efficiency in operations, efforts were put in to ensure efficient inventory management. This helped RIL
maintain a robust supply chain and thereby ensured a minimal impact on the business overall.
Source: Capital Line, Annual Report, IMV Research
 Reliance Industries Ltd.

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