.

Volume No.. I Issue No. 175 Reliance Industries Ltd. May 25, 2018

BSE Code: 500325 NSE Code: RELIANCE Reuters Code: RELI.NS Bloomberg Code: RIL:IN

Market Data
RIL is the largest private sector company in India, with businesses in the energy,
petrochemicals, textiles, natural resources, retail, and telecommunications. It has
a strong presence in the integrated energy value chain and pre-eminent position
Rating BUY
CMP (Rs.) 922
in retail and digital services in India.
Target (Rs.) 1,013
 Strong operating performance: RIL reported a strong show in Q4FY18 with Potential Upside 10%
18% YoY growth in standalone revenue thanks to its improved performance from Duration Long Term
petrochemicals segment. Further, demand recovery post GST stabilization and Face Value (Rs.) 10
improving economic activity also supported growth. EBITDA increased at a strong 52 week H/L (Rs.) 1011/649
pace of 19% YoY supported by performance of petrochemical segment, however,
Decline from 52WH (%) 9%
EBITDA margin improved marginally by 19 bps YoY to 15.3% due to disappointing
refining margins. Adj. PAT grew by just 6.7% YoY due to sharp increase (↑521% Rise from 52WL (%) 42%
YoY) in interest expense. Going forward, we expect revenue/adj.PAT to grow at a Beta 1.2
CAGR of 13%/9% over FY18-20E led by healthy gross refining margin (GRM) and Mkt. Cap (Rs.Cr) 583,929
strong growth momentum in petchem segment.
 Healthy GRM to drive refining segment: Despite 16% YoY growth in refining
Fiscal Year Ended
revenue during the quarter on account of higher crude oil prices, EBIT declined
11% YoY largely due to reduced crude throughput (down 4% YoY) and adverse
Y/E FY17 FY18E FY19E FY20E
movement in Brent-Dubai differentials. As a result, EBIT margin contracted by 229
bps YoY to 7.5%. RIL’s GRM came in at $11 per barrel during Q4FY18 and Revenue
2,42,025 2,90,042 3,65,670 3,73,401
outperformed Singapore complex refining margins by USD4/bbl (USD5.1/bbl in (Rs.Cr)
Adj. profit
Q4FY17) due to lower light‐heavy and Brent-Dubai differentials. We expect GRMs 31,425 33,612 37,521 39,721
(Rs.Cr)
to remain strong (in the range of USD11-12/bbl) over FY18-20E as oil demand
stays robust with no major capacity addition in sight. Further, refining capacity Adj. EPS (Rs.) 49.6 53.1 59.2 62.7
addition of 0.8mbpd in 2018 will also drive growth going ahead. P/E (x) 18.6 17.4 15.6 14.7
 Petchem maintains strong growth momentum: Petchem segment grew
strongly with 46% YoY increase in revenue on the back of higher volumes from P/BV (x) 2.0 1.9 1.7 1.5
new paraxylene, refinery offshore cracker (ROGC) and downstream units. Volumes ROE (%) 11.6 11.1 11.3 10.9
grew 42% YoY supported by ramp-up of the recently commissioned ROGC.
Further, Petcoke gasifier is expected to be fully operational by H1FY19. EBIT
increased by 84% YoY leading to 356 bps YoY increase in EBIT margin to 17.2% on Shareholding Pattern Sep-17 Dec-17 Mar-18
the back of strong volumes and higher margins from polypropylene, polyester and
fiber intermediate products. Going forward, with near full utilization of petchem Promoters 47.6 47.5 47.5
projects and expected firming-up of propylene and MEG margins will boost RIL’s FII’s 23.6 24.1 24.3
earnings. MFs/Insti 11.8 11.7 11.5
Outlook and Valuation: Public 10.1 9.6 9.5
Going forward, improved petchem performance coupled with rising refining Others 6.9 7.1 7.2
margins globally augurs well for RIL’s earnings’ outlook. Driven by strong outlook,
we recommend ‘BUY’ rating on the stock with a target price (TP) of Rs 1013 based One year price chart
on sum of the parts (SOTP) valuation methodology wherein we value its
standalone business at Rs 640 (P/E of 10x for FY20E) and investments at Rs 374. RIL Sensex (Rebased)
900

400
May-17

Apr-18
May-18
Dec-17
Aug-17

Mar-18
Jun-17

Oct-17

Jan-18
Nov-17
Jul-17

Sep-17

Feb-18

For private circulation only

 Reliance Industries Ltd: Business overview
RIL is the largest private sector company in India, with businesses in the energy,
petrochemicals, textiles, natural resources, retail, and telecommunications. It has a strong
presence in the integrated energy value chain and pre-eminent position in retail and digital
services in India. With a portfolio consisting of onshore and offshore blocks in India (including
CBM) as well as acreage in US Shale plays, RIL is one of the largest exploration and production
players in India. At Jamnagar, it has commissioned the world's largest refinery off-gas cracker
(ROGC) complex at Jamnagar which will use refinery process residue to produce feedstock
used to make petrochemicals. On Petrochemicals segment, it is one of the most integrated
petrochemicals producers globally and holds leadership position across product categories

Quarterly Financials (Standalone)

QoQ
YoY Growth
(Rs cr) Q4FY18 Q4FY17 Growth % Q3FY18 %
Sales 84,037 67,146 25.2 73,256 14.7
EBITDA 13,425 11,280 19.0 13,744 -2.3
Margin (%) 16.0 16.8 18.8
Depreciation 2,679 2,409 11.2 2,475 8.2
EBIT 10,746 8,871 21.1 11,269 -4.6
521.3 33.5
Interest 1,460 235 1,094
Other Income 2,621 1,371 91.2 1,624 61.4
Exceptional Items - - - - -
PBT 11,907 10,007 19.0 11,799 0.9
Tax 3,210 1,856 73.0 3,345 -4.0
Reported PAT 8,697 8,151 6.7 8,454 2.9
Adjustment - - - - -
Adj PAT 8,697 8,151 6.7 8,454 2.9
No. of shares (cr) 633.3 633.3 0.0 633.3 0.0
EPS (Rs) 13.7 12.9 6.7 13.4 2.9

Source: Company, In-house research

For private circulation only

 Investment Rationale
Healthy GRM to drive refining segment
Despite 16% YoY growth in refining revenue during the quarter on account of higher crude oil
prices. EBIT declined 11% YoY largely due to reduced crude throughput (down 4% YoY) and
adverse movement in Brent-Dubai differentials. As a result, EBIT margin contracted by 229
bps YoY to 7.5%. RIL’s GRM came in at $11 per barrel during Q4FY18 and outperformed
Singapore complex refining margins by USD4/bbl (USD5.1/bbl in Q4FY17) due to lower light‐
heavy and Brent-Dubai differentials. We expect GRMs to remain strong (in the range of
USD11-12/bbl) over FY18-20E as oil demand stays robust with no major capacity addition in
sight. Further, refining capacity addition of 0.8mbpd in 2018 will also drive growth going
ahead.

Petchem to maintain strong growth momentum

Petchem segment grew strongly with 46% YoY increase in revenue on the back of higher
volumes from new paraxylene, refinery offshore cracker (ROGC) and downstream units.
Volumes grew 42% YoY supported by ramp-up of the recently commissioned ROGC. Further,
Petcoke gasifier is expected to be fully operational by H1FY19. EBIT increased by 84% YoY
leading to 356 bps YoY increase in EBIT margin to 17.2% on the back of strong volumes and
higher margins from polypropylene, polyester and fiber intermediate products. Going
forward, with near full utilization of petchem projects and expected firming-up of propylene
and MEG margins will boost RIL’s earnings.

Aggressive pricing impacts ARPU

Reliance Jio posted subdued performance during the quarter as tariff cut resulted in 11% YoY
contraction in ARPU to Rs137 in Q4FY18. As a result, topline rose by a meagre 3.6% QoQ while
Ebitda margin contracted by 40 bps QoQ to 37.8%. However, customer additions at 26.5
million remained strong taking the total subscriber base to ~18.66 crore as on March 31,
2018. We expect Jio’s revenue to grow at 50% CAGR over FY18-20E while EBITDA margin is
expected to expand from 33% in FY18 to 42.2% in FY20E driven by strong subscriber additions
and expected easing in tariff war in the sector. We now value Jio at Rs 253 a share based on
DCF methodology.

E&P continues to disappoint

Oil & Gas segment continues its disappointing performance as the segment reported 10% YoY
decline in revenue impacted by declining volumes. Further, EBIT loss expanded to Rs416cr in
Q4FY18 from Rs78 crore in Q4FY17as improved price realisation was offset by volume
declines in oil & gas production primarily due to natural decline and shutdown of wells due to
water and sand ingress. The company’s KG D-6 gas production declined by 42% YoY to 4.3
mmscmd whereas production in US Shale operations declined by 27% YoY to 32.4 Bcfe.

Sum of the parts (SOTP) valuation

Particulars Basis Multiple Year Value (Rs Cr) Value/Share

RIL (standalone) EPS 10.0x FY20E 405149 640

Investments
Shale Gas Investments 1.0x - 60,570 95
Retail Investments 2.0x - 13,328 21
Telecom DCF 253
SEZ Investments 1.0X 2526 4
Target Price 1013

For private circulation only

 Financials:
Strong operating performance
RIL reported a strong show in Q4FY18 with 18% YoY growth in standalone revenue thanks to
its improved performance from petrochemicals segment. Further, demand recovery post GST
stabilization and improving economic activity also supported growth. EBITDA increased at a
strong pace of 19% YoY supported by performance of petrochemical segment, however,
EBITDA margin improved marginally by 19 bps YoY to 15.3% due to disappointing refining
margins. Adj. PAT grew by just 6.7% YoY due to sharp increase (↑521% YoY) in interest
expense. Going forward, we expect revenue/adj.PAT to grow at a CAGR of 13%/9% over FY18-
20E led by healthy gross refining margin (GRM) and strong growth momentum in petchem
segment.
Overall revenue to grow at 13% CAGR during FY18-20E

400000 365670 373401 50%

290042
233158 242025
200000 20% 26% 0%
4% 2%
0 -29% -50%
FY16 FY17 FY18 FY19E FY20E
Revenue (Rs Crore) % Growth (YoY)

EBITDA to grow at 8% CAGR over FY18-20E

80000 19.0%
58212 60002
60000 17.9% 5174117.8% 18.0%
3934716.9% 43256
17.0%
40000
15.9% 16.1% 16.0%
20000 15.0%
0 14.0%
FY16 FY17 FY18 FY19E FY20E

EBITDA (Rs. Cr) EBITDA Margin (%)

Return ratios to stay robust

15.0 11.4 11.5 12.5 13.1 13.2

11.6 11.6 11.1 11.3 10.9
10.0

5.0

0.0
FY16 FY17 FY18 FY19E FY20E

ROE (%) ROCE (%)

For private circulation only

 Profit & Loss Account (Standalone) Balance Sheet (Standalone)
Y/E (Rs. Cr) FY17 FY18E FY19E FY20E Y/E (Rs. Cr) FY17 FY18E FY19E FY20E

Total operating Income 2,42,025 2,90,042 3,65,670 3,73,401 Paid up capital 3,251 6,335 6,335 6,335
Profit & Loss Account (Standalone)
Raw Material cost 1,64,572 2,02,065 2,61,774 2,66,748
Profit & Loss Account (Consolidated)
Reserves and Surplus 2,85,062 3,08,312 3,41,271 3,76,431
Employee cost 4,434 4,740 5,976 6,102
Net worth 2,88,313 3,14,647 3,47,606 3,82,766
Other operating expenses 29,763 31,496 39,709 40,548
Minority interest - - - -
EBITDA 43,256 51,741 58,212 60,002
Total Debt 1,07,446 96,835 76,835 61,835
Depreciation 8,465 9,580 11,002 11,592
Other non-current
EBIT 34,791 42,161 47,209 48,410 24,766 30,635 30,635 30,635
liabilities
Interest cost 2,723 4,656 3,502 2,819 Total Liabilities 4,20,525 4,42,117 4,55,076 4,75,236

Other Income 8,709 8,220 7,691 8,821 Total fixed assets 2,87,319 3,00,447 3,09,445 3,17,852
Profit before tax 40,777 45,725 51,398 54,412
Capital WIP
Tax 9,352 12,113 13,878 14,691
Goodwill 0 0 0 0
Profit after tax 31,425 33,612 37,521 39,721
Investments 1,92,450 2,25,222 2,45,222 2,65,222
Minority Interests - - - -
Net Current assets -71,846 -1,04,773 -1,20,811 -1,29,060
P/L from Associates - - - -
Other non-current
Adjusted PAT 31,425 33,612 37,521 39,721 12,602 21,221 21,221 21,221
assets
E/o income / (Expense) - - - - Total Assets 4,20,525 4,42,117 4,55,076 4,75,236
Reported PAT 31,425 33,612 37,521 39,721

Key Ratios (Standalone)

Cash Flow Statement (Standalone)
Y/E (Rs. Cr) FY17 FY18E FY19E FY20E Y/E FY17 FY18E FY19E FY20E

Pre tax profit 40,777 45,725 51,398 54,412 Growth (%)

Net Sales 3.8 19.8 26.1 2.1
Depreciation 8,465 9,580 11,002 11,592 EBITDA 9.9 19.6 12.5 3.1
Chg in Working Capital 19,533 33,904 37,654 1,311 Net profit 14.8 7.0 11.6 5.9
Others (7,765) (3,564) (4,189) (6,002) Margin (%)
EBITDA 17.9 17.8 15.9 16.1
Tax paid (9,560) (8,953) (13,878) (14,691)
NPM 13.0 11.6 10.3 10.6
Cash flow from operating
51,450 76,692 81,988 46,623
activities
Return Ratios (%)
Capital expenditure (30,266) (22,708) (20,000) (20,000)
RoE 11.6 11.1 11.3 10.9
Chg in investments 10,174 (32,772) (20,000) (20,000)
RoCE 11.5 12.5 13.1 13.2
Other investing cashflow (34,857) 5,470 7,691 8,821 Per share data (Rs.)
Cash flow from investing EPS 49.6 53.1 59.2 62.7
(54,949) (50,010) (32,309) (31,179)
activities DPS 5.1 6.0 6.0 6.0
Equity raised/(repaid) 696 3,084 - - Valuation(x)
Debt raised/(repaid) 3,020 (10,611) (20,000) (15,000) P/E 18.6 17.4 15.6 14.7
Dividend paid - (4,561) (4,561) (4,561) EV/EBITDA 15.9 13.1 10.9 10.5
Other financing activities (5,355) (4,656) (3,502) (2,819) EV/Net Sales 2.8 2.3 1.7 1.7
P/B 2.0 1.9 1.7 1.5
Cash flow from financing
(1,639) (16,744) (28,064) (22,380) Turnover Ratios (x)
activities
Net chg in cash (5,138) 9,938 21,616 (6,937) Net Sales/GFA 0.9 0.9 1.0 1.0
Sales/Total Assets 0.5 0.5 0.6 0.5

For private circulation only

 Rating Criteria
Large Cap. Return Mid/Small Cap. Return
Buy More than equal to 10% Buy More than equal to 15%
Hold Upside or downside is less than 10% Accumulate* Upside between 10% & 15%
Reduce Less than equal to -10% Hold Between 0% & 10%
Reduce/sell Less than 0%
* To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell.
* Reliance Industries Limited is a Large-cap company.

Disclaimer:

The SEBI registration number is INH200000394.

The analyst for this report certifies that all the views expressed in this report accurately reflect his / her personal views about the subject
company or companies, and its / their securities. No part of his / her compensation was / is / will be, directly / indirectly related to specific
recommendations or views expressed in this report.
This material is for the personal information of the authorized recipient, and no action is solicited on the basis of this. It is not to be
construed as an offer to sell, or the solicitation of an offer to buy any security, in any jurisdiction, where such an offer or solicitation would
be illegal.
We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable, though its accuracy or
completeness cannot be guaranteed. Neither Wealth India Financial Services Pvt. Ltd., nor any person connected with it, accepts any
liability arising from the use of this document. The recipients of this material should rely on their own investigations and take their own
professional advice. Price and value of the investments referred to in this material may go up or down. Past performance is not a guide for
future performance.
We and our affiliates, officers, directors, and employees worldwide:
1. Do not have any financial interest in the subject company / companies in this report;
2. Do not have any actual / beneficial ownership of one per cent or more in the company / companies mentioned in this document, or
in its securities at the end of the month immediately preceding the date of publication of the research report, or the date of public
appearance;
3. Do not have any other material conflict of interest at the time of publication of the research report, or at the time of public
appearance;
4. Have not received any compensation from the subject company / companies in the past 12 months;
5. Have not managed or co-managed the public offering of securities for the subject company / companies in the past 12 months;
6. Have not received any compensation for investment banking, or merchant banking, or brokerage services from the subject
company / companies in the past 12 months;
7. Have not served as an officer, director, or employee of the subject company;
8. Have not been engaged in market making activity for the subject company;
This document is not for public distribution. It has been furnished to you solely for your information, and must not be reproduced or
redistributed to any other person.

Contact Us:

Funds India
Uttam Building, Third Floor|
No. 38 & 39| Whites Road|
Royapettah|Chennai – 600014|
T: +91 7667 166 166
Email: contact@fundsindia.com

For private circulation only

 Dion’s Disclosure and Disclaimer

I, Abhishek Kumar Das, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify
that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or
securities.
Disclaimer

This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot
tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party
for commercial use, with or without consideration.
Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to
the recipient solely for the purpose of information.

Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any
representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby
confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the
time horizon and benchmarks on which the rating is based.

Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is
not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This
report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are
current opinions as of the original publication date appearing on this report and the information, including the opinions and
estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time.

Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility,
financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this
report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs,
reduction in the dividend or income, etc.

The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an
independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax
advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise
constitutes a personal recommendation of Dion.

REGULATORY DISCLOSURES:
Dion is engaged in the business of developing software solutions for the global financial services industry across the entire
transaction lifecycle and inter-alia provides research and information services essential for business intelligence to global companies
and financial institutions. Dion is listed on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations,
2014 (SEBI Regulations) as a Research Analyst vide Registration No. INH100002771. Dion’s activities were neither suspended nor has
it defaulted with requirements under the Listing Agreement and / or SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from doing business by BSE / SEBI or any other
authority.

In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business,
we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no
disciplinary action has been taken against us or our Analysts in connection with our business activities.
In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be
considered by the reader before making an investment decision:

For private circulation only

 1. Disclosures regarding Ownership
Dion confirms that:
(i) Dion/its associates have no financial interest or any other material conflict in relation to the subject company (ies)
covered herein at the time of publication of this report.

(ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered
herein at the end of the month immediately preceding the date of publication of this report.

Further, the Research Analyst confirms that:

(i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they
have no other material conflict in the subject company at the time of publication of this report.

(ii) he, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject
company (ies) covered herein at the end of the month immediately preceding the date of publication of this report.

2. Disclosures regarding Compensation:

During the past 12 months, Dion or its Associates:
(a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation
for investment banking or merchant banking or brokerage services from the subject company (c) Have not received any
compensation for products or services other than investment banking or merchant banking or brokerage services from the subject.
(d) Have not received any compensation or other benefits from the subject company or third party in connection with this report

3. Disclosure regarding the Research Analyst’s connection with the subject company:
It is affirmed that I, Abhishek Kumar Das employed as Research Analyst by Dion and engaged in the preparation of this report have
not served as an officer, director or employee of the subject company

4. Disclosure regarding Market Making activity:

Neither Dion /its Research Analysts have engaged in market making activities for the subject company.

Copyright in this report vests exclusively with Dion.

For private circulation only