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Please refer to page 38 for important disclosures and analyst certification, or on our website
www.macquarie.com/research/disclosures.
INDIA
RIL IN Underperform
Price (at 15:23, 24 Jul 2017 GMT) Rs1,615.00
Valuation Rs 1,340.00 - DCF (WACC 9.0%, beta 0.9, ERP 6.9%, RFR 2.5%, TGR 4.0%) 12-month target Rs 1,350.00
12-month TSR % -15.7
GICS sector Energy
Market cap Rsbn 5,252
Market cap US$m 80,048
Free float % 47
30-day avg turnover US$m 297
Number shares on issue m 3,252
Investment fundamentals Year end 31 Mar 2017A 2018E 2019E 2020E
EBITDA bn 461.9 559.8 618.5 691.3 EBITDA growth % 10.7 21.2 10.5 11.8 EBIT bn 345.5 358.3 393.6 431.2 EBIT growth % 14.6 3.7 9.8 9.6
Reported profit bn 299.0 288.8 297.7 326.5 Adjusted profit bn 299.0 278.0 297.7 326.5 CFPS Rs 140.80 162.47 177.09 198.79 CFPS growth % 12.9 15.4 9.0 12.3 PGCFPS x 11.5 9.9 9.1 8.1 EPS rep Rs 101.33 97.88 100.87 110.66 EPS adj Rs 101.33 94.19 100.87 110.66 EPS adj growth % 18.6 -7.0 7.1 9.7 PER adj x 15.9 17.1 16.0 14.6 Total DPS Rs 11.00 12.00 13.00 14.00 Total div yield % 0.7 0.7 0.8 0.9 ROA % 5.3 5.0 5.3 5.8 ROE % 11.9 9.8 9.5 9.8
EV/EBITDA x 14.2 11.7 10.6 9.5 Net debt/equity % 67.8 56.2 56.5 54.4 P/BV x 1.8 1.6 1.5 1.4
Also see:
India Refining & Marketing – Who says
elephants can’t dance?
Global Refining – Expansions outweighed
by demand
Analyst(s) Aditya Suresh, CFA +852 3922 1265 aditya.suresh@macquarie.com
25 July 2017 Macquarie Capital Limited
Reliance Industries Defying gravity? We resume coverage of Reliance Industries (RIL) with an Underperform
recommendation and Rs.1350 one-year price target with 15% potential
downside. To justify today’s share price, in addition to the growth from
RIL’s new refining and petchem projects and a constructive refining
margin view, we need to ascribe US$12 billion option value for JIO
(burgeoning telecom business)—with not a single $ of revenue booked we
consider this optionality premature.
“Growth is life”
In-sync with RIL’s motto, EBITDA has grown 1.4x over the past five years and is
set to increase 1.9x over the next five years underpinned by the ramp-up of
several new projects—refinery petcoke gasification, off-gas cracker, paraxylene
capacity addition, ethane imports, retail expansion, and JIO (page 10-30). This
EBITDA growth is however fully captured in consensus estimates in our view.
FCF and returns to improve… but underwhelm
While RIL is transitioning this year from the funding to harvest phase for its
refining and petchem projects, in our opinion consensus cash capex estimates
for FY18-20e are light by 35%. We attribute this difference to JIO, R-series
deepwater gas, and repayment of vendor financing. For FY18-20e we project an
average 1% FCF yield and 9% ROCE versus consensus at 5%-12%.
Amazon-esque optionality?
RIL shares have de-coupled from the historically strong returns versus multiple
framework as the market has been willing to price the optionality for JIO (fig 1).
To the extent valuing JIO akin to Amazon or Alibaba is appropriate and if we
apply 5x EV-Sales on FY5 estimates then the optionality on offer is a significant
US$23 billion or Rs.500/sh above our base case. For perspective this would be
equivalent to the size of India’s largest telecom incumbent. We ascribe
c.Rs.90/sh value for JIO in our base case valuation (fig 3). Our Rs.1350 price
target implies 9.0x FY19E EV-EBITDA, 13.5x P/E, and 1.3x P/B. For
downstream exposure our top pick is Indian Oil (IOCL IN, TP: Rs.550, +45%).
Fig 1 Rs.1350 RIL fundamental base case with 15% downside; current share price already implies meaningful option value for JIO
Source: Company data, Macquarie Research, July 2017
800
1,100
1,400
1,700
2,000 Rs/sh Reliance 3-Year Bull-Bear Outcomes
Current price
Macquarie Research Reliance Industries
25 July 2017 2
Inside
Base Valuation & Bull-Bear Outcomes 3
Versus Consensus 4
Consolidated Earnings Outlook 9
(1) Refining 10
(2) Petchems 17
(3) Telecom (JIO) 25
(4) Upstream Oil & Gas 30
(5) Organized Retail, Other 33
Residual Income & Sensitivities 34
Financial Summary 35
Macquarie Quant View 36
RIL IN rel BSE Sensex performance, &
rec history
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, July 2017
(all figures in INR unless noted)
Company Profile
Reliance Industries (RIL) is India’s largest
listed conglomerate with operations in
refining, petrochemicals, telecoms,
upstream oil and gas, organized retail,
media, etc. Refining and petrochemicals
combined account for over 90% of group
EBITDA today. The contribution of RIL’s
burgeoning telecom business could rise to
one-fifth of group EBITDA in five years,
from zero today, we estimate.
Reliance – In a page Fig 2 Core growth and JIO optionality already in the price
Source: Company data, Macquarie Research, July 2017
0
400
800
1200
1600 Rs/sh
Macquarie Research Reliance Industries
25 July 2017 3
Base Valuation & Bull-Bear Outcomes Fig 3 Rs.1350 one-year price target for Reliance based on a sum-of-the-parts valuation and supported with residual income valuation work. Our target price implies 9.0x FY19e EV-EBITDA, 13.5x P/E, and 1.3x P/B. Target also supported by residual income valuation (p. 35)
Notes:
Net debt does not include vendor financing and other current liabilities equivalent to Rs380/sh as we consider this akin to accounts payable. We treat RIL’s short-term investments (Rs180/sh) equivalent to cash.
Fig 4 Wide bear-bull range; bull case largely rests on JIO being a success
Bull Case:
Amazon-esque optionality for JIO assumes 5x EV-Sales on FY5 estimates
Bull Refining Margin +$2 per barrel versus base case – RIL $16.0/bbl, Singapore benchmark $9.0/bbl
Bear Case:
$5.0/bbl Singapore benchmark refining margin
20% contraction in integrated petchem margins
30% lower revenue versus base case assuming 500bps lower market share
Source: Company data, Macquarie Research, July 2017
RIL SOTP Valuation Approach
FY18-20e
Reference
(INR, bn)
Target
Multiple
Base
Value
(US$, bn)
Base
Value
(INR/sh)
Refining and Marketing EV-EBITDA 311 7.0x 33.5 738 10% premium to EM R&M median
Petrochemicals EV-EBITDA 245 7.0x 26.4 582 Target at EM petchem median
Organized Retail EV-EBITDA 21 15.0x 4.8 105 India retail comps used
Oil and Gas EV-DACF 13 4.0x 0.8 17 Disc to EM upstream median
Others (ex JIO) EV-EBITDA 6 10.0x 0.9 20 Assumed similar to group multiple
LT Investments Fair Value (reported) 3.8 84 At reported fair value
Net Debt, ex JIO End-FY17, ex JIO -12.3 -271 Also includes ST investments
RIL Core Equity Value 1,275
EV-Invested Capital 1,817 0.7x 19.6 431 Discount to IC as ROIC<Ke
EV-EBITDA (FY3) 94 7.5x 8.1 178 EM median multiple on FY3 est.
EV-Sales (FY3) 344 2.3x 9.1 201 Softbank used as comps
Asset Book Value 2,043 0.5x 15.7 346
Residual Income 14.0 309 ROCE<Ke across forecast period
JIO Core Enterprise Value 13.3 293 Average of above approaches
Optionality ∆ EV-Sales (FY5) 762 5.0x 22.8 503
Net Debt, JIO standalone End-FY17 -9.3 -206
RIL JIO Equity Value, ex optionality 87 Used in MacQ base case
RIL JIO Equity Value, including optionality 590 For reference only
Treasury shares 292mn Rs.1600 6.4 141 Pet Trust & holding by subsids
Conglomerate Discount 10% -150
RIL Equity Valuation, ex JIO optionality 1,353 MacQ base case
RIL Equity Valuation, including JIO optionality and no conglomerate discount 1,866 For reference only
Net income breakeven FY22+
Amazon, FB, Alibaba multiples
Comments
800
1,100
1,400
1,700
2,000Reliance 3-Year Bull-Bear Outcomes
Current price
Macquarie Research Reliance Industries
25 July 2017 4
Versus Consensus EBITDA inline for FY18, downside for FY19-20e
We expect RIL consolidated EBITDA to increase 21%/10%/12% y/y in FY18/19/20e, inline
for FY18, but 12% below for FY19-20e. Our key modelling assumptions include:
Refining & Marketing – constructive product crack outlook and opex savings from
petcoke gasification project partly offset by tighter light-heavy crude spreads. We assume
RIL restarts 300 stations/pa but the impact on consolidated EBITDA is less than 1%, on
our estimates.
Petchems – Three new projects add to segment earnings from FY18: (1) Refinery off-gas
cracker (1.7mtpa downstream capacity), (2) Paraxylene (2.2 mtpa), (3) Ethane imports /
cracker feedstock reconfiguration. The incremental contribution of these projects is partly
offset by negative movements in long-chain petchem margins.
Telecom (JIO) – Rs.165-260 billion revenue, Rs.20-60 billion EBITDA modelled for FY18-
19e based on 26% India mobile broadband market share and better-than-peers cost
structure.
Upstream – Production declines until ramp-up of three-phase R-series gas project (RIL
60%, BP 40%) from FY21e. The production decline is offset by a mild improvement in
average gas price realizations due to a mix improvement (Sohagpur CBM).
Others (Retail, Network etc) – Solid c.30% revenue growth (store adds, higher per store
revenue) and stable EBITDA margins assumed. Group EBITDA contribution still sub-5%.
What could bring us in-line with consensus? FY18 – inline. For FY19, the gap of
c.Rs.80 billion implies US$14.4/bbl refining (+$2.7 vs. base) or better-than-forecast
petchem spreads -- impact of 5% change in petchem spreads is equivalent to ~US$0.7/bbl
change in refining, we estimate.
Fig 5 RIL EBITDA FY18-19 bridge: consensus downside for FY19; refining and petchems key sensitivities
Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.
Refining Y/Y EBITDA movements(Rs., billion) FY18 FY19 FY20
FY0 EBITDA 286 299 301
Petcoke gasification savings 32 19 8
Product Crack vs. Light Crude ∆ 41 -15 6
Crude Sourcing / Light-Heavy ∆ -49 3 16
Inventory ∆ -5 -1 4
FX / Other -6 -3 -1
FY1 EBITDA 299 301 334
Y/Y change 4% 1% 11%
Petchems Y/Y EBITDA movements(Rs., billion) FY18 FY19 FY20
FY0 EBITDA 165 221 255
Off-gas Cracker Commissioning 28 24 0
Polyester, Paraxylene Expansion 22 11 0
Cost savings from Ethane imports 16 -2 4
Polymer spread ∆ -6 4 0
Polyester spread ∆ -5 -3 -2
Elastomer spread ∆ -5 -3 0
FX / Other / Eliminations 6 2 2
FY1 EBITDA 221 255 260
Y/Y change 34% 15% 2%
Macquarie Research Reliance Industries
25 July 2017 5
EBIT 20% below for FY19-20e; JIO amortization a key uncertainty
Our forecast EBITDA growth is diluted to 10%/3%/10% y/y EBIT growth for FY18/19/20e. The
main drag is the significant amortization headwind for JIO (charges capitalized till date).
Against consensus our EBIT estimate is mildly ahead for FY18 but 20% below for FY19-20e.
Fig 6 EBIT growth outlook materially suppressed by JIO amortization headwind
Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.
Free Cash Flow to disappoint – disconnect in headlines versus cash movements
While RIL reported US$17.7 billion capex for FY17 the actual cash outflow was 32% lower
due to vendor financing. Similarly cash capex in FY15-16 was 37%-58% below reported
capex. On a cumulative basis we estimate a US$11 billion cash flow drag in the next five
years due to capex timing differences over the past five years. As such while headline capex
reported by RIL peaked in FY17 and will be meaningfully lower from this year, we do not
expect a commensurate improvement in free cash flow, even with customer advances for
JioPhone. Our base case implies an average 1% FCF yield over the next three years versus
consensus forecast 5% FCF yield.
Fig 7 FCF to improve but underwhelm – consensus capex 35% light; repayment of vendor financing a drag
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
Mere 1% FCF yield
FY18-20e
Macquarie Research Reliance Industries
25 July 2017 6
Reported returns to improve but underwhelm; cash return outlook better
Our base case modelling implies return on capital employed (ROCE) for RIL remains
essentially around 9-10% in our forecast horizon. That said, we note that on a cash basis,
adjusting for depreciation and amortization expenses (JIO a big incremental drag), returns
improve to 18% by FY20e from 14% in FY17.
Fig 8 JIO a drag on returns… only a mild improvement in returns on completion of expansion projects
Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18. Consensus estimates for non-covered companies
Multiples have decoupled from fundamentals
RIL shares have de-coupled from the historically strong returns versus multiple framework as
the market has been willing to price the optionality for JIO (fig 9). To the extent this optionality
doesn’t play out the downside for RIL’s returns-justified multiple is material c.30%, albeit not
in our base case.
Fig 9 Reliance trading multiples supported by fund flows, JIO optionality and not entirely by fundamentals
Source: FactSet, Company data, Macquarie Research, July 2017. Estimates from FY18.
No meaningful
improvement in
ROCE
Macquarie Research Reliance Industries
25 July 2017 7
Fig 10 EV-EBITDA versus ROIC: Premium multiple for core (ex JIO) priced in; including JIO, Reliance in special-sit territory due to potential optionality
Source: Company data, FactSet, Macquarie Research, July 2017. Consensus estimates for non-covered companies.
Rs.1950 bull-case: potentially meaningful optionality but likely premature?
In our base case we model revenues for JIO with the mindset of a burgeoning telecom
company structurally taking share from the incumbents. To the extent our reference should
not be telecoms and instead the likes of Amazon or Alibaba then the upside to our revenue
modelling is potentially significant. If this were the case valuing JIO on EV-Sales several
years out perhaps is more appropriate – if we apply 5x EV-Sales on FY5 estimates then the
option value on offer is a significant US$23 billion or Rs.500/sh. For perspective this would be
equivalent to the size of India’s largest telecom incumbent.
Fig 11 To the extent JIO should be viewed as Amazon then the upside to revenue and multiples is significant
Source: Company data, FactSet, Macquarie Research, July 2017
0
5
10
15
20
0 2 4 6 8 10 12 14 16 18 20
US$, billion
Year
India Telcos Revenue Profile
Bharti (T1: '02) Idea (T1: '06)
JIO (T1: '18) RCom (T1: '07)
0
30
60
90
120
150
0 2 4 6 8 10 12 14 16 18 20
US$, billion
Year
Revenue: JIO versus Amazon, Alibaba
JIO (T1: '18) Amazon (T1: '97)
Alibaba (T1: '12)
JIO = Amazon or
Alibaba? Rs.1950
bull-case
Ma
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R
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Ind
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s
25
Ju
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017
8
Fig 12 Reliance Comparables Valuation
Source: FactSet, Company data, Macquarie Research, July 2017. Shares priced on 21-July. Consensus data used for stocks not rated (NR) by Macquarie.
Reliance Industries - Peer Valuation
Company Reco. TickerMarket
Cap
ADTV -
6MCurrency Price
Price
TargetDivi Yield TSR P/B
FCF
YieldROACE Gearing
(US$ bn) (US$ mn) (local) (local) (local) FY1 (PT + DY) FY1 FY2 FY1 FY2 FY1 FY1 FY1 FY1
Asia Integrated / Diversified Majors 6.0 x 5.8 x 14.1 x 13.7 x 1.4 x 7% 10% 28%
PetroChina-H Neutral 857-HK 115.1 71.7 HKD 4.91 5.20 2.0% 8% 4.7 x 4.9 x 247.8 x 61.4 x 0.7 x 5% 4% 32%
Sinopec-H Outperform 386-HK 93.0 64.7 HKD 6.00 7.00 4.9% 22% 4.2 x 4.1 x 12.6 x 11.3 x 0.9 x 15% 8% 0%
Reliance Industries Underperform 500325-IN 80.2 298.9 INR 1,615.00 1,350.00 0.8% -16% 10.9 x 10.0 x 15.6 x 16.1 x 1.5 x 0% 9% 42%
Formosa Petrochemical Underperform 6505-TW 32.9 11.9 TWD 105.00 85.00 4.8% -14% 10.9 x 12.2 x 18.5 x 20.7 x 3.2 x 8% 18% -5%
PTT NR PTT-TH 32.3 53.8 THB 378.00 NR 4.1% NR 4.0 x 3.6 x 10.0 x 9.9 x 1.2 x 11% 10% 25%
Indian Oil Outperform 530965-IN 28.7 33.2 INR 380.40 550.00 3.6% 48% 7.2 x 6.6 x 10.1 x 8.7 x 1.7 x 5% 14% 50%
Refining & Marketing - APAC, EM 6.6 x 6.5 x 8.7 x 9.0 x 1.5 x 7% 15% 38%
JXTG Holdings Outperform 5020-JP 15.2 66.5 JPY 493.00 600.00 3.7% 25% 5.4 x 5.1 x 8.1 x 8.2 x 1.5 x 9% 7% 108%
Bharat Petroleum Outperform 500547-IN 15.7 26.9 INR 467.20 580.00 3.3% 27% 8.5 x 7.3 x 10.7 x 9.9 x 2.8 x 3% 24% 62%
SK Innovation Outperform 096770-KR 14.3 37.8 KRW 171,500.0 230,000.0 3.9% 38% 4.3 x 4.2 x 6.8 x 6.7 x 0.8 x 9% 12% 5%
PKN Orlen NR PKN-PL 12.5 26.4 PLN 106.35 NR 2.7% NR 5.4 x 5.8 x 9.4 x 10.9 x 1.4 x 5% 15% 7%
S-Oil Outperform 010950-KR 11.2 23.9 KRW 108,000.0 137,000.0 5.1% 32% 10.3 x 8.2 x 10.6 x 9.0 x 2.1 x -12% 13% 50%
Hindustan Petroleum Outperform 500104-IN 8.7 26.8 INR 367.25 430.00 3.3% 20% 8.1 x 8.5 x 8.2 x 9.0 x 2.3 x 2% 20% 80%
Tupras NR TUPRS-TR 7.7 21.4 TRY 108.80 NR 7.6% NR 6.8 x 6.9 x 9.2 x 9.4 x 2.8 x 8% 20% 55%
MOL NR MOL-HU 6.5 10.1 HUF 21,585.00 NR 3.3% NR 4.0 x 3.8 x 7.5 x 7.8 x 1.2 x na na 27%
Caltex Australia Outperform CTX-AU 6.5 24.1 AUD 31.35 32.77 3.8% 8% 7.5 x 8.0 x 13.5 x 14.8 x 2.7 x 7% 21% 20%
Sinopec Shanghai NR 338-HK 6.2 9.6 HKD 4.45 NR 4.4% NR 8.0 x 7.5 x 8.0 x 7.8 x 1.5 x 7% 20% -26%
GS Holdings NR 078930-KR 6.2 11.8 KRW 73,100.00 NR 2.3% NR 6.5 x 6.2 x 7.1 x 7.1 x 0.9 x 7% 11% 82%
Thai Oil NR TOP-TH 5.1 9.5 THB 84.00 NR 4.6% NR 6.0 x 5.8 x 9.9 x 10.4 x 1.5 x 13% 12% 7%
Petrochemicals - APAC 8.4 x 7.9 x 13.6 x 13.9 x 1.7 x 4% 11% 9%
Shin-Etsu Chemical Outperform 4063-JP 39.7 104.7 JPY 10,335.00 11,750.00 1.3% 15% 8.7 x 7.4 x 20.0 x 17.3 x 1.9 x 2% 11% -41%
Nan Ya Plastics Underperform 1303-TW 19.5 19.1 TWD 74.80 59.00 4.8% -16% 9.9 x 10.6 x 15.9 x 17.5 x 1.7 x 4% 5% 10%
LG Chemicals Outperform 051910-KR 22.5 65.7 KRW 329,000.0 370,000.0 1.6% 14% 5.9 x 5.6 x 12.0 x 11.6 x 1.6 x 3% 16% 6%
Formosa Plastics Neutral 1301-TW 19.2 18.6 TWD 91.50 85.00 5.3% -2% 10.8 x 11.2 x 15.8 x 16.7 x 1.8 x 4% 5% 28%
Formosa Chem & Fibre Underperform 1326-TW 17.4 20.5 TWD 90.80 78.00 5.8% -8% 8.2 x 8.7 x 15.2 x 16.3 x 1.6 x 8% 7% 3%
Lotte Chemical Outperform 011170-KR 11.1 49.0 KRW 362,500.0 610,000.0 1.2% 69% 3.8 x 3.8 x 5.3 x 5.2 x 1.1 x 10% 19% 7%
PTTGC NR PTTGC-TH 9.3 22.7 THB 70.00 NR 4.8% NR 6.4 x 6.1 x 9.8 x 9.6 x 1.2 x 10% 11% 16%
Siam Cement NR SCC-TH 35.9 25.9 THB 500.00 NR 3.9% NR 8.6 x 8.4 x 10.8 x 11.0 x 2.2 x 3% 13% 53%
Telecoms 7.6 x 6.7 x 15.8 x 14.7 x 2.2 x 7% 7% 45%
China Mobile Outperform 941-HK 220.9 160.6 HKD 84.25 112.00 3.5% 36% 4.0 x 3.6 x 12.9 x 11.5 x 1.5 x 7% 12% -47%
SoftBank Outperform 9984-JP 90.4 519.4 JPY 9,224.0 10,900.0 0.5% 19% 7.3 x 6.7 x 15.1 x 12.5 x 2.3 x 7% 6% 244%
Vodafone Underperform VOD-GB 78.3 162.8 GBP 2.26 1.70 5.8% -19% 7.6 x 7.5 x 41.7 x 28.4 x 1.1 x 8% 4% 45%
SingTel Outperform Z74-SG 46.7 59.9 SGD 3.91 4.32 4.6% 15% 10.1 x 9.6 x 15.8 x 14.7 x 2.2 x 4% 7% 37%
Bharti Airtel NR 532454-IN 25.5 2.7 INR 411.15 NR 0.4% NR 7.7 x 6.7 x 52.3 x 33.6 x 2.3 x 3% 8% 130%
Reliance Comm. NR 532712-IN 0.9 1.7 INR 24.25 NR 0.0% NR 13.0 x 12.5 x na na 0.2 x 27% na 163%
Refining & Marketing - Developed Markets 8.1 x 7.2 x 19.7 x 14.4 x 1.9 x 4% 9% 37%
Phillips 66 NR PSX-US 42.8 205.1 USD 82.85 NR 3.3% NR 10.2 x 8.5 x 20.5 x 14.4 x 1.9 x 2% 9% 37%
Valero Energy Outperform VLO-US 30.3 311.1 USD 67.78 73.00 4.1% 12% 6.6 x 5.7 x 16.2 x 12.1 x 1.6 x 6% 9% 21%
Marathon Petroleum NR MPC-US 28.7 247.0 USD 55.34 NR 2.7% NR 7.4 x 7.2 x 19.7 x 16.3 x 2.2 x 4% 8% 65%
Neste Underperform NESTE-FI 11.2 25.8 EUR 37.51 29.00 3.4% -19% 8.7 x 8.8 x 15.7 x 16.5 x 2.5 x 6% 16% 10%
Tesoro Outperform TSO-US 15.5 214.9 USD 96.99 107.00 2.3% 13% 8.1 x 6.2 x 19.8 x 14.0 x 1.6 x 0% 9% 77%
Integrated Oil Majors - Developed Markets 7.6 x 6.4 x 20.3 x 19.6 x 1.2 x 5% 6% 25%
Exxon Mobil Underperform XOM-US 339.5 1,083.8 USD 80.12 70.00 3.8% -9% 9.0 x 8.1 x 22.7 x 19.6 x 1.9 x 3% 8% 21%
Royal Dutch Shell Neutral RDSB-GB 223.8 156.6 GBP 20.87 21.50 7.2% 10% 8.2 x 9.6 x 15.3 x 16.8 x 1.2 x 8% 6% 29%
Chevron Neutral CVX-US 195.6 718.3 USD 103.25 105.00 4.2% 6% 7.6 x 6.4 x 26.8 x 20.9 x 1.3 x 5% 5% 24%
Total SA Outperform FP-FR 124.0 294.5 EUR 42.72 50.00 5.5% 23% 6.2 x 6.3 x 11.7 x 13.9 x 1.2 x 7% 7% 25%
BP p.l.c. Underperform BP-GB 114.5 206.6 GBP 4.46 4.00 6.8% -4% 5.7 x 5.9 x 20.3 x 25.8 x 1.2 x 5% 5% 39%
EV/EBITDA P/E
Macquarie Research Reliance Industries
25 July 2017 9
Consolidated Earnings Outlook We project Reliance’s consolidated EBITDA to increase 1.9x over the next five years, with
growth supported by the commissioning/ramp-up of the following projects: (1) petcoke
gasification (refining), (2) refinery off-gas cracker, (3) paraxylene expansion, (4) ethane
imports, (5) organized retail floor space additions, and (6) JIO. At the EBIT line growth is
diluted to 10%/3%/10% for FY18/19/20e due to the amortization headwind for JIO once the
operations are deemed commercial.
Fig 13 1.9x EBITDA expansion in next five years; Refining and petchems contribution to group EBITDA still dominant at c.85%, EBIT contribution at 110% in FY20e
Source: Company data, Macquarie Research, July 2017
Fig 14 Despite good EBITDA growth, amortization expenses for JIO a near-term headwind to RIL’s EBIT outlook
Source: Company data, FactSet, Macquarie Research, July 2017
Macquarie Research Reliance Industries
25 July 2017 10
(1) Refining Constructive APAC refining view – c.US$7 per barrel FY18-20E.
US$11.3/11.7/12.8 per barrel GRM for Reliance in FY18/19/20E with product crack and
slate improvement partly offset by tighter crude differentials.
Petcoke gasification project improves EBITDA per barrel by US$2.5 long-term.
4%/1%/11% FY18-20E Y/Y segment EBITDA. Expansion led by opex savings due to
petcoke gasification project. Tighter crude differentials a drag in FY18.
18% average ROIC FY18-20e, versus average 14% since FY05.
Fig 15 17% refining segment EBITDA expansion by FY20e
Fig 16 Refining & Marketing EBITDA, EBIT outlook – growth led by petcoke gasification; tighter crude differentials a near-term drag
Source: Company data, Bloomberg, Macquarie Research, July 2017. Note: Estimates from FY18
Constructive APAC refining view
We forecast benchmark Asian refining margins to average a solid c.US$7.0 per barrel till
2020e. Our analysis indicates excess capacity East of Suez (Asia Pacific + Middle East) will
continue to decline till at least 2020 – we model a four-year cumulative 2.0 million b/d of
capacity additions versus 3.5 million b/d demand growth. This in-turn leads to an
improvement in Asian refinery utilization to a robust 88%, up 400 basis points versus the
average since 2000. For details on Macquarie’s constructive Global/Asia refining supply-
demand and margin outlook refer to Global Refining – Expansions outweighed by demand
and Who says elephants can’t dance?
Refining Y/Y EBITDA movements(Rs., billion) FY17 FY18 FY19 FY20
FY0 EBITDA 268 286 299 301
Petcoke gasification savings 0 32 19 8
Product Crack vs. Light Crude ∆ -19 41 -15 6
Crude Sourcing / Light-Heavy ∆ 1 -49 3 16
Inventory ∆ 23 -5 -1 4
FX / Other 14 -6 -3 -1
FY1 EBITDA 286 299 301 334
Y/Y change 7% 4% 1% 11%
Macquarie positive
on APAC refining till
2020
Macquarie Research Reliance Industries
25 July 2017 11
Fig 17 Falling refining excess capacity in APAC and Middle East supports a constructive refining margin view
Source: OGJ, FGE, BP Stat Review, MEED, Reuters, Bloomberg, Company data, Macquarie Research, July 2017
~US$11-14 per barrel FY18-22E margin outlook for RIL
We model Reliance’s refining margin based on outlooks for individual end-product crack
(relative to Dubai). We then adjust the bottom-up margin estimate for crude grade differentials
and inventory movements.
FY18E: US$11.3/bbl, +$0.3Y/Y, with the benefit of petcoke gasification and our modelled
improvement in product cracks partly offset by tighter light-heavy crude differentials.
FY19E: US$11.7/bbl, +$0.4 Y/Y, due to better diesel cracks and higher contribution from
petcoke gasification.
FY20-22E: US$13-14/bbl, with the further expansion due to full benefit of petcoke
upgradation and an assumed normalization of light-heavy spreads. This margin estimate
represents an average US$6-7 per barrel premium to our Asian refining margin forecast.
Robust margins
even with tighter L-
H spreads
Macquarie Research Reliance Industries
25 July 2017 12
Fig 18 We expect ~US$11.3/11.7/12.8/14.0 per barrel GRM for Reliance in FY18/19/20/LT
Source: Company data, Bloomberg, Macquarie Research, July 2017. Note: Estimates from FY18
FY18 base case expectation:
Product cracks (relative to Dubai) – In aggregate our bottom-up product crack modelling
implies no meaningful improvement versus FY17.
Grade differentials – Following the production cuts from OPEC since the start of the
2017, we note a tightening of crude grade differentials -- Arab Light-Heavy $1.1, lowest
since end-2009; Brent-Dubai close to par vs. +$2.6 5-year average. We expect these
lower-than-normal differentials to persist until OPEC starts to ramp supply (2Q18e). Tighter
light-heavy crude differentials is a net-negative for complex refiners (Reliance) that are
capable of processing cheaper crudes. For FY18e, we assume a US$1.5/bbl crude grade
advantage for RIL, down from US$3.0 in FY17 and US$2.5 5-year average.
Inventory movements – At Macquarie’s flat c.US$50/bbl oil price deck till 2019 and RIL’s
relatively short inventory window (7 days) we see no significant inventory impacts.
Petcoke gasification (page 13-14) adds US$2.5/bbl long-term, c.US$1.0 for FY18e.
Every US$1 per barrel change in RIL’s refining margin makes a 5.4%/4.6% impact on
FY18-19E group EBITDA.
Petcoke gasification project improves EBITDA per barrel by US$2.5
Objective: Lower refinery opex / cost of internal power generation by displacing LNG.
What is RIL doing? Installing 10 gasifiers (E-Gas, partner CB&I) at its Jamnagar refinery (4
in DTA refinery, 6 in SEZ) and 5 air separation units (partner Linde) to convert petcoke
produced on-site to synthetic gas (syngas – mixture of hydrogen, carbon monoxide, carbon
dioxide). This syngas will be: (a) used to displace higher cost LNG in local power generation,
and (b) further processed to yield hydrogen, synthetic natural gas, and other chemicals.
Timeline: 2QFY18E commissioning.
Compression of
Light-Heavy crude
differentials a drag
for RIL’s refining
margins
Macquarie Research Reliance Industries
25 July 2017 13
Fig 19 RIL Integrated Gasification Project Schematic
Source: Company data, Macquarie Research, July 2017. PX – Paraxylene, LDPE – Linear Density Polyethylene, LLDPE - Linear Low Density Polyethylene, MEG – Monoethylene Glycol, Syngas – Synthetic natural gas,
In Fig 21 we show the standalone impact of RIL’s petcoke regasification project. See
Petrochemicals section for impact of Off-Gas Cracker and PX projects.
Key project considerations:
Input(s): Petcoke produced from refinery, petcoke/low-grade coal sourced externally (65:35
feed blend flexibility), oxygen (from the air separation units).
Output(s): Syngas for use in power generation or further processed to yield hydrogen,
synthetic natural gas (SNG, via methanation of syngas), methanol, ammonia, acetic acid.
Long-run per ton economics: LNG gross cost saving (US$370/ton) + syngas for process
heaters (US$340/ton) versus petcoke cost US$95/ton (tied to MacQ coal price forecast,
$130 syngas equivalent) and opex US$35/ton. Blended project EBITDA ~US$190/ton.
Implications
Reported refining GRM increases by US$1.0/1.6/2.5 in FY18/19/long-term. We note
this estimate is about 20% lower versus estimates at the start of 2017 due to higher
domestic petcoke prices.
Group EBITDA increases by US$500/780/1200 million in FY18/19/LT or +7%-17% versus
FY17a.
Fig 20 Petcoke Gasification Project Sensitivities
Source: Company data, Macquarie Research, July 2017
Crude:US$50/bbl
US$365/tonRefinery
Off-Gas Cracker
MEG
LDPE
LLDPE
Gasification
Ethane (C2) and equivalents
H2
Petcoke
H2
SNG
Syngas/cogen fuel
Paraxylene
Syngas/cogen fuel
Return
Reformate
PX
Benzene
AromaticsUS$700 to
900/ton
OlefinsUS$700 to 1100/ton
Ammonia/Urea Acetic acid Methanol/ DME MTOOxo-alcohols
Syngas/cogen fuel
LNG-Petcoke Spread
~US$300/ton
Refinery EBITDA per barrel impact (US$) Project IRR sensitivity
$/mmbtu LNG 60 70 80 95 100 120 $/mmbtu LNG 60 70 80 95 100 120
2.5 -37% -26% -16% 0% 5% 26% 13% -37% -26% -16% 0% 5% 26%
7.5 -29% 2.4 2.2 2.0 1.6 1.5 1.0 7.5 -29% 13% 12% 10% 8% 7% 3%
8.5 -19% 2.7 2.5 2.3 1.9 1.8 1.3 8.5 -19% 15% 14% 12% 10% 9% 5%
9.5 -10% 3.0 2.8 2.6 2.2 2.1 1.6 9.5 -10% 17% 15% 14% 12% 11% 7%
10.5 0% 3.3 3.1 2.8 2.5 2.4 1.9 10.5 0% 18% 17% 16% 13% 13% 9%
11.5 10% 3.6 3.4 3.1 2.8 2.7 2.2 11.5 10% 20% 19% 17% 15% 14% 11%
12.5 19% 3.9 3.7 3.4 3.1 3.0 2.5 12.5 19% 22% 20% 19% 17% 16% 13%
$ per ton Petcoke $ per ton Petcoke
Petcoke gasification
project the key
incremental driver
for RIL’s refining
profits
Macquarie Research Reliance Industries
25 July 2017 14
Fig 21 Petcoke Gasification project economics
Source: Company data, IHSMarkit, Macquarie Research, July 2017
17% segment EBITDA expansion by FY20e, 18% average ROCE
We show our refining segment financials in Fig 22 below. Put together, by FY20e we model
RIL’s segment EBITDA to expand 17% versus FY17e. As summarized in Fig 15, the key
drivers of this growth are the petcoke gasification project and our constructive view on
product cracks, while tighter crude differentials represents a near-term drag.
Against an average 14% segment ROCE over the past ten years (range 7%-21%), our
modelling implies an average 18% ROCE FY18-20E.
Petcoke Gasification
Capex (US$, billion) 6.0
Estimated Project IRR (base) 13%
Pricing Assumptions FY18E FY19E FY20E Long-term Comments
Brent (US$/bbl) 52.0 48.9 53.8 65.0 Macquarie commodities team estimate
LNG (US$/mmbtu) 7.8 7.3 8.1 9.1
LNG (US$/ton) 398 374 411 464
Methane, Ethane average (US$/ton) 301 298 299 340 Proxy used for SNG
Petcoke, ex-works (US$/ton) 108 94 94 94 RIL petcoke price data
LNG-Petcoke spread (US$/ton) 290 279 317 370
Operationals FY18E FY19E FY20E Long-term
Number of petcoke gasifiers (#) 10 10 10 10
Petcoke input (million tons/pa) 6.0 8.6 8.6 8.6 ~75% captive feed; low-grade coal also considered
Syngas produced (mmscmd) 16.2 23.2 23.2 23.2
Syngas produced (mn ton LNG equiv./pa) 4.4 6.3 6.3 6.3 Petcoke slurry + O2
% of RIL total refined products production 7% 10% 10% 10%
… LNG replaced in powergen (mn tons) 2.3 3.3 3.3 3.3 Syngas for refinery cogen power plant
… Syngas for other uses (mn tons) 2.1 3.0 3.0 3.0 SNG, H2, acetyl chemicals etc.
Opex (US$/ton) 25 25 25 25 Per guidance
Economics per ton of syngas produced (US$)
LNG cost savings 290 279 317 370 Use of lower cost petcoke for powergen
Syngas for petchems, other 301 298 299 340 Credit for petchem heat fuel, acetyl chemicalsAverage savings / internal realization 295 288 308 355Petcoke cost -147 -129 -129 -129 Scaled for petcoke:syngas pdtn ratio
Opex -34 -34 -34 -34
Gross Spread (US$/ton) 113 125 145 192
Gross Margin (US$/ton) - system impact 8 12 14 19 Above scaled for total refined products production
Gross Margin (US$/bbl) - system impact 1.0 1.6 1.9 2.5
Financials (US$ million)
LNG cost savings 661 911 1,033 1,205
Syngas for petchem process heaters, other 633 896 899 1,022
Petcoke cost -647 -809 -809 -809
Operating cost -150 -214 -214 -214
EBITDA 497 783 909 1,204
% of FY17E Refining EBITDA 11% 18% 21% 27%
% of FY17E Group EBITDA 7% 11% 13% 17%
Depreciation -210 -300 -300 -300
EBIT 287 483 609 904
Return on Investment 5% 8% 10% 15%
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Fig 22 Reliance: Refining & Marketing Segment Financial Summary
Source: Company data, Macquarie Research, July 2017. Note: Estimates from FY18
REFINING & MARKETINGFY11
(Mar-11)
FY12
(Mar-12)
FY13
(Mar-13)
FY14
(Mar-14)
FY15
(Mar-15)
FY16
(Mar-16)
FY17
(Mar-17)
FY18
(Mar-18)
FY19
(Mar-19)
FY20
(Mar-20)
FY21
(Mar-21)
FY22
(Mar-22)
FY23
(Mar-23)
Refining Operationals
Capacity, Utilization, & Volumes
Nameplate Refining Capacity (mtpa) 60 60 60 60 60 60 60 60 60 60 60 60 60
Nameplate Refining Capacity (kb/d) 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233 1,233
Crude Throughput (million tonnes) 67 68 69 68 68 70 70 70 70 70 70 70 70
Refinery CDU Utilization (%) 111% 113% 114% 114% 113% 116% 117% 117% 117% 117% 117% 117% 117%
Refined Products Production (million tonnes) 61 62 63 62 62 64 64 64 65 65 65 65 65
Margins
Singapore GRM benchmark (US$/bbl) 5.1 7.9 7.8 5.9 6.3 7.5 5.8 6.1 6.5 6.8 6.8 6.8 6.8
RIL Gross Refining Margin - reported (US$/bbl) 8.4 8.6 9.2 8.1 8.6 10.8 11.0 11.3 11.7 12.8 13.7 14.1 14.0
RIL Delta to Singapore GRM (US$/bbl) 3.3 0.8 1.3 2.2 2.3 3.3 5.2 5.2 5.2 6.0 6.9 7.3 7.2
Gross Refining Margin vs. Dubai (US$/bbl) 6.3 7.9 8.0 6.4 6.9 8.0 6.9 7.0 7.7 7.9 7.7 7.5 7.5
Crude Grade Differentials (US$/bbl) 2.8 1.3 1.3 1.8 3.3 3.0 3.0 1.4 1.5 2.0 2.5 3.0 3.0
Inventory Gain / Loss (US$/bbl) 0.1 -0.2 -0.2 -1.0 -0.5 0.2 0.0 0.0 0.1 0.1 0.1 0.0
Location / Freight advantage (US$/bbl) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Petcoke Gasification (US$/bbl) 0.0 1.0 1.6 1.9 2.5 2.5 2.5
Margin Delta vs. Forecast - Slate/Specs (US$/bbl) -1.8 -1.6 -0.9 -0.9 -1.6 -0.6 0.0 1.1 0.0 0.0 0.0 0.0 0.0
Segment Financials (Rs, million)
Gross Margin 171,397 189,185 229,675 228,454 245,341 336,801 361,154 366,445 382,986 419,096 451,039 464,435 463,792
Operating Expenses, Other -40,007 -48,655 -57,035 -60,454 -54,411 -69,041 -75,004 -78,584 -82,134 -85,556 -85,556 -85,556 -85,556
Opex per bbl (US$/bbl) 1.8 2.0 2.1 2.0 1.7 2.1 2.1 2.3 2.4 2.5 2.5 2.5 2.5
EBITDA 131,390 140,530 172,640 168,000 190,930 267,760 286,150 298,731 300,852 333,540 365,483 378,879 378,235
Depreciation & Amortization -39,670 -43,980 -44,340 -44,040 -32,660 -32,420 -35,590 -46,051 -47,429 -48,118 -48,790 -48,820 -48,850
EBIT 91,720 96,550 128,300 123,960 158,270 235,340 250,560 252,680 253,423 285,422 316,693 330,058 329,386
Capital Employed (as defined by RIL) 733,250 744,830 674,210 677,470 1,269,370 784,870 1,015,571 1,066,118 1,081,612 1,096,719 1,097,399 1,098,061 1,098,708
ROA 7% 7% 9% 9% 9% 13% 12% 10% 10% 11% 12% 13% 13%
ROACE (as defined by RIL) 10% 10% 14% 14% 12% 18% 21% 18% 18% 20% 22% 23% 22%
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Fig 23 Singapore Benchmark Margin and Product Cracks
Macquarie Research Reliance Industries
25 July 2017 17
(2) Petchems Segment profit forecast based on Macquarie and industry consultant IHSMarkit supply-
demand and product-by-product margin outlooks.
Three new projects add to segment earnings from FY18: (1) Refinery off-gas cracker
(1.7mtpa downstream capacity), (2) Paraxylene (2.2 mtpa), (3) Ethane imports / cracker
feedstock reconfiguration.
25% cumulative petchem production volume growth in FY18-19 following
commissioning of refinery off-gas cracker project and Paraxylene project.
US$525-540 per ton weighted average integrated gross margin versus US$550/T
average since FY05. Declines in long-chain polymer, polyester, elastomer spreads in
FY18 are largely offset by an improvement in the underlying end-product mix—PE, Fiber
intermediates (for external sale)—and rising contribution of cheap ethane feedstock.
c.60% FY18-20e cumulative segment EBITDA growth despite benign spread outlook
explained by operating leverage to rising production. Segment EBITDA +34%/15%/2%
Y/Y in FY18/19/20e. 21% average ROIC FY18-20e, versus average 16% since FY05.
Fig 24 Petrochemical EBITDA movements—despite flattish spreads… significant growth due to volume expansion and feedstock cost savings
Fig 25 Reliance Petrochemicals EBITDA, EBIT outlook—meaningful growth in FY18-19
Source for above: Company data, Macquarie Research, July 2017. Note: Estimates from FY18
Petchems Y/Y EBITDA movements(Rs., billion) FY17 FY18 FY19 FY20
FY0 EBITDA 137 165 221 255
Off-gas Cracker Commissioning 0 28 24 0
Polyester, Paraxylene Expansion 11 22 11 0
Cost savings from Ethane imports 0 16 -2 4
Polymer spread ∆ 1 -6 4 0
Polyester spread ∆ 1 -5 -3 -2
Elastomer spread ∆ 10 -5 -3 0
FX / Other / Eliminations 5 6 2 2
FY1 EBITDA 165 221 255 260
Y/Y change 20% 34% 15% 2%
Macquarie Research Reliance Industries
25 July 2017 18
Volumes / Incremental Capacity Additions
We estimate group petchem production to increase 19%/5% in FY18/19 underpinned by the
commissioning of RIL’s refinery off-gas cracker and paraxylene projects.
Project-1: Refinery Off-Gas Cracker Project
What is RIL doing? Commissioning a new 1.5 million ton/pa (mtpa) ethylene cracker
(Technip) and downstream units to produce (a) polyethylene (LDPE 0.40mtpa, LLDPE
0.55mtpa) and (b) intermediate MEG (0.73mtpa) for its polyester business. This cracker is
integrated with RIL’s Jamnagar refinery and will use refinery off-gases (ethane, propane) as
feedstock. The project is mechanically complete and we assume 2QFY18E commissioning.
Project Implications:
Downstream/intermediate petchem products production capacity expands by 8%.
At full capacity, this project adds US$900 million to group EBITDA, under our base case
chemical spread assumptions (Fig 27).
The impact on RIL consolidated EBITDA is 6%/12%/13% in FY18/19/LT.
Fig 26 35% cumulative production volume growth following commissioning of off-gas cracker and PX projects
Source: Company data, Macquarie Research, July 2017. Note: Estimates from FY18.
Project-2: Paraxylene Expansion
What is RIL doing? Commissioning a three-train 2.2 mtpa Paraxylene unit (CB&I, BP) and
0.55 mtpa Benzene unit. This unit is integrated with RIL’s Jamnagar refinery and will use
naphtha/reformate as feedstock. RIL commissioned the final train of this project in June 2017.
Project Implications:
Doubling of RIL’s PX production capacity. Now #2 player globally with 11% share.
At full capacity this project adds US$500 million to group EBITDA, under our base case
chemical spread assumptions (Fig 27).
The impact on RIL consolidated EBITDA is 5-7% in FY18-19/LT.
Off-gas cracker
project drives
petchem volume
growth
PX 3-train project
live from Jun-17
Macquarie Research Reliance Industries
25 July 2017 19
Fig 27 Reliance Petchem Project Expansions
Source: Company data, Macquarie Research, July 2017
Petchem Projects
Generic Pricing Assumptions (US$/ton) FY18E FY19E FY20E Long-Term
Naphtha 470 442 487 588
Ethane 326 321 323 405
Propane 492 462 508 614
Ethylene 1069 1108 1100 1100
MEG 745 716 761 862
LDPE 1179 1092 1137 1238
LLDPE 1160 1037 1084 1186
PX 886 862 907 1008
Benzene 793 800 845 946
Aromatics 594 562 607 708
New Projects EBITDA (US$, mn) 1,026 1,547 1,685 1,746 Refinery off-gas cracker + PX + Ethane imports
% of FY17E Petchems EBITDA 41% 61% 67% 69%
% of FY17E Group EBITDA 14% 22% 24% 25%
1) Refinery Off-Gas Cracker (ROGC)
Capex (US$, billion) 5.5
Estimated Project IRR (base) 11%
Ethylene Cracker Capacity (million tons/yr) 1.40 1.40 1.40 1.40
MEG (million tons/yr) - downstream 0.73 0.73 0.73 0.73
LDPE (million tons/yr) - downstream 0.40 0.40 0.40 0.40
LLDPE (million tons/yr) - downstream 0.55 0.55 0.55 0.55
Refinery off-gas / NGL feedstock (mtpa) 0.89 1.77 1.77 1.77 1.27 ethane feedstock for 1 ethylene
Ethylene Production - intermediate (mtpa) 0.70 1.40 1.40 1.40 All production internally consumed
MEG production (mtpa) 0.37 0.73 0.73 0.73 1.0 MEG from 0.65 Ethylene and 0.67 O2
LDPE production - end product (mtpa) 0.20 0.40 0.40 0.40 1.0 LDPE from 1.01 Ethylene
LLDPE production - end product (mtpa) 0.28 0.55 0.55 0.55 1.0 LLDPE from 1.01 Ethylene
Financials (US$ million)
MEG revenue 272 523 555 629
LDPE revenue 236 437 455 495
LLDPE revenue 319 571 596 652
Feedstock cost -289 -569 -573 -718
Opex -100 -143 -143 -143 Opex per ton assumed well below current avg.
EBITDA 437 819 891 916
% of FY17E Petchems EBITDA 17% 32% 35% 36%
% of FY17E Group EBITDA 6% 12% 13% 13%
2) Paraxylene Expansion
Capex (US$, billion) 5.5 CB&I / BP crystallisation technology
Estimated Project IRR (base) 5%
Paraxylene - 3 trains (mtpa) 2.20 2.20 2.20 2.20 Final train commissioned in Jun-17
Benzene (mtpa) 0.56 0.56 0.56 0.56
Financials (US$ million)
PX revenue 1,364 1,897 1,995 2,218 Intermediate for Polyester production
Benzene revenue 311 448 473 530
Feedstock cost -1,150 -1,564 -1,687 -1,967 Reformate from refinery
Opex -185 -265 -265 -265 Opex per ton lower than group average
EBITDA 340 516 516 516
% of FY17E Petchems EBITDA 13% 20% 20% 20%
% of FY17E Group EBITDA 5% 7% 7% 7%
3) Ethane Imports
Capex (US$, billion) 1.5
Estimated Project IRR (base) 15%
Ethane Vessel Fleet (#) 6 6 6 6
Ethane Vessel Operational (#) 6 6 6 6 All vessels atleast one-charter done (Jul-17)
Ethane Shipping Effective Capacity (mtpa) 1.5 1.5 1.5 1.5
Ethane-Propane spread (US$/mt) -166 -142 -185 -209 Including shipping + processing cost
Cost saving / EBITDA accretion 248 213 278 314
% of FY17E Petchems EBITDA 10% 8% 11% 12%
% of FY17E Group EBITDA 3% 3% 4% 4%
Macquarie Research Reliance Industries
25 July 2017 20
Petchem Margin Chains
We model RIL’s integrated margin based on product-by-product long-chain delta / margin
relative to naphtha, followed by a naphtha–NGLs feedstock cost adjustment.
On our base case product spread assumptions, RIL’s petchem weighted average gross
margin is effectively flat at US$525per ton in FY18-19e and US$550/T average since
FY05. The declines this year in elastomers chain (following an abnormally strong 2HFY17)
and a modest correction in polymers and polyesters is offset by an improvement in volume
mix and better fiber intermediate spreads (for external sale).
For details on the spread outlook for individual products see our Global Petchems Market
Outlook (Jan-17).
In Fig 28 below, we show long-chain/integrated margin trends with individual impacts scaled
to RIL’s specifications. In pages 23-24, we show our operational dashboard for underlying
gross polymer and polyester prices and spreads (not weighted for RIL).
Fig 28 Reliance Petrochemical Spreads – long-chain margins to remain near historical averages
Source: IHSMarkit, Company data, Macquarie Research, July 2017. Estimates from FY18
Flat long-chain /
integrated petchem
margins
Macquarie Research Reliance Industries
25 July 2017 21
Project-3: Ethane vessel additions to lower feedstock costs
The feedstock mix for RIL’s ethylene crackers today is c. 30% naphtha, c.30%
ethane/propane/butane, and the remaining 40% (Jamnagar) flexible to use either naphtha
or gas liquids. To adjust for the use of gas-based feedstock, we add to our calculated
integrated margin the prevailing gas liquid (NGL)-naphtha spread and weight this for the
proportion of RIL’s polymer production. We estimate the use of NGL feedstock (mainly
propane) added c.US$20 per ton (US$50/T un-weighted) to RIL’s overall integrated margin
in FY17.
Reliance is now transforming the feedstock composition for its crackers at Hazira,
Gandhar, and Nagothane to include ethane, in addition to naphtha and propane. To
facilitate this, RIL has taken delivery of six custom-built vessels to ship ethane from the
U.S. to Jamnagar. At capacity, these vessels enable RIL to add 1.5 million tons of ethane
to its feedstock mix.
The addition of ethane to the feedstock mix will enhance RIL’s gas-based feedstock
advantage. With Ethane-Propane spreads at US$150-200 per ton (including processing
and transportation), we estimate feedstock cost savings of US$250-300 million for FY18-
20; 10-12% of FY17 segment EBITDA and 3-4% of RIL consolidated EBITDA. See fig 27
for simplified economics.
Summary Segment Financials
Put together, we estimate RIL petchem segment EBITDA to expand 60% over the next three
years, +34/15/2% Y/Y in FY18/19/20E. Our forecast growth from the commissioning of RIL’s
off-gas cracker, PX units, and feedstock cost savings from ethane imports more than offset
the modest downside from product spread movements. Similar to the refining segment, our
modelling implies an improvement in ROCE to an average 21% in FY18-20E; average 16%
(range 13%-19%) over the past ten years.
Ethane import
project enhances
feedstock cost
savings
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Fig 29 Reliance Petchems Summary Segment Financials
Source: Company data, Macquarie Research, July 2017. Estimates from FY18
PETCHEMSFY11
(Mar-11)
FY12
(Mar-12)
FY13
(Mar-13)
FY14
(Mar-14)
FY15
(Mar-15)
FY16
(Mar-16)
FY17
(Mar-17)
FY18
(Mar-18)
FY19
(Mar-19)
FY20
(Mar-20)
FY21
(Mar-21)
FY22
(Mar-22)
FY23
(Mar-23)
Total Petchems Production (million tons) 21.1 21.9 22.0 21.9 22.0 24.7 24.9 29.6 31.1 31.1 31.1 31.1 31.1
Aggregate Utilization Rate 99% 101% 99% 95% 94% 96% 90% 93% 97% 97% 97% 97% 97%
Y-o-Y growth -4% 4% 0% 0% 0% 12% 1% 19% 5% 0% 0% 0% 0%
Of which... Production meant for sale -- Polymer, Polyester, Fiber Intermediates (~30% surplus), Elastomers (million tons)9.0 9.5 9.4 9.5 9.6 10.8 10.8 13.2 14.6 14.6 14.6 14.6 14.6
… % of headline production 43% 43% 43% 43% 44% 44% 43% 45% 47% 47% 47% 47% 47%
Polymer Production (million tons) 4.09 4.46 4.40 4.48 4.30 4.62 4.46 4.84 5.37 5.37 5.37 5.37 5.37
Polyester Production (million tons) 1.70 1.66 1.63 1.65 1.85 2.19 2.28 2.40 2.40 2.40 2.40 2.40 2.40
Fiber Intermediates Production (million tons) 4.50 4.76 4.76 4.71 4.88 6.43 6.89 8.93 9.51 9.51 9.51 9.51 9.51
Elastomer Production (million tons) 0.25 0.26 0.25 0.26 0.27 0.30 0.32 0.47 0.47 0.47 0.47 0.47 0.47
Other Petchem Production for sale -- benzene, orthoxylene, LAB, toluene, caustic soda1.67 1.90 1.90 1.90 1.90 1.90 1.90 2.18 2.46 2.46 2.46 2.46 2.46
CHEMICAL MARGIN, SPREAD -- IHSMarkit, RIL, Bloomberg, Macquarie
Chemicals Gross Spead, weighted avg - calculated (US$/ton)588 621 553 545 558 515 525 524 524 540 547 547 547
Y-o-Y growth 15% 6% -11% -1% 2% -8% 2% 0% 0% 3% 1% 0% 0%
Polymer Spread, weighted avg. (US$/ton) 544 487 511 570 629 613 616 597 610 610 611 613 613
Polyester Integrated Margin (US$/ton) 968 916 755 689 698 632 639 610 592 582 568 557 557
Elastomer Spread, weighted avg. (US$/ton) 1,218 1,798 967 517 451 428 883 704 613 613 613 613 613
Other spread: Aromatics-Naphtha (US$/ton) 18 91 140 82 77 147 118 124 120 120 120 120 120
Naphtha-NGLs differential for gas crackers (US$/ton)-44 9 -33 -31 -20 -22 6 29 68 109 125 122 122
Segment Financials (INR million)
Gross Margin (Calculated) 237,910 280,796 278,966 307,238 328,289 355,170 382,358 448,463 497,791 512,554 520,000 519,931 519,841
Operating Expenses, Other -122,710 -169,746 -185,106 -200,588 -217,359 -218,050 -217,708 -230,792 -242,560 -252,667 -252,667 -252,667 -252,667
EBITDA 115,200 111,050 93,860 106,650 110,930 137,120 164,650 221,042 255,231 259,887 267,334 267,265 267,174
EBITDA Margin (US$/MT) 121 106 80 82 82 86 99 115 126 129 132 132 132
Depreciation & Amortization -22,150 -21,370 -20,580 -22,620 -28,020 -35,260 -34,750 -43,164 -49,900 -49,709 -49,525 -49,348 -49,178
Segment EBIT 93,050 89,680 73,280 84,030 82,910 101,860 129,900 177,878 205,331 210,179 217,809 217,917 217,996
EBIT Margin (US$/MT) 98 86 62 64 62 64 78 92 102 104 108 108 108
Capital Employed (as defined by RIL) 397,630 352,190 419,600 477,470 464,900 455,420 570,440 659,453 656,924 654,495 652,160 649,917 647,761
ROA 16% 16% 13% 12% 11% 11% 10% 11% 12% 12% 13% 13% 13%
ROACE (as defined by RIL) 18% 19% 15% 15% 13% 17% 19% 22% 23% 24% 25% 25% 25%
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Fig 30 Polymer Integrated Margin dashboard
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Fig 31 Polyester Long-Chain Margin dashboard
Macquarie Research Reliance Industries
25 July 2017 25
(3) Telecom (JIO) Top-down revenue modelling. Cost structure benchmarked against Airtel, Idea.
JIO subscriber base assumed at 150 /235 million by FY20/25, from 125 million today, at
25%/30% overall India mobile broadband market share.
EBITDA contribution rises to c.30% of group along with higher revenue by FY25.
Significant depreciation & amortization headwind leaves EBIT in the red till FY21.
Cash return on capital employed (CROCE) expands to 9%/18% by FY20/25; ROIC -
1%/15%.
We note high modelling error risk and outline what-if scenarios on page-28.
(a) 50% India data revenue market share? +80% standalone JIO EBITDA impact,
+34% RIL consolidated EPS on our base case FY25 estimates.
(b) Content optionality? Every Rs.100 billion of revenue adds 20% to standalone JIO
EBITDA and 5% to group EPS.
(c) 50% JIO EBITDA margin – well above Airtel’s 35%? Every 100bps change in
margin has a 2.5%/0.5% impact on standalone JIO EBITDA and consolidated EPS.
Fig 32 Telecom (JIO) EBIT breakeven to take at least 4-5 years
Source: Company data, Macquarie Research, July 2017
JIO Revenue Modelling Assumptions
Our full modelling assumptions are shown on page 29, below we outline the main drivers:
India total mobile connection growth of 6% pa till FY20 (8% pa FY15-17 average), about
in line with estimates published by industry consultants GSMA.
Within this, c.300 million new unique mobile subscribers added by FY20–1.5x the
growth in China. Unique user penetration rises about 10 percentage points from today to
reach 68%.
The proportion of mobile broadband users in India has grown from 16% to 35% in the
past five years along with a gradual reduction of tariffs and the widening range of low-cost
smartphones. We assume mobile broadband penetration reaches 43% by FY20 (in line
with GSMA) and 50% by FY25.
Macquarie Research Reliance Industries
25 July 2017 26
Reliance JIO has seen exponential growth from the get-go due to its free plan offers. JIO’s
subscriber base has ramped to 125 million subscribers in the space of three quarters and
accounts for 10% of total connections and 27% of mobile broadband users in India.
At 30% India mobile data user market share by FY25, the number of JIO subscribers
would increase to c.240 million by FY25, or twice today’s level.
The top-3 operators in India today have a c.60% market share. We assume the market
share gains for RIL would largely be from players outside the top-3.
Our monthly revenue per user assumption is based on the average of JIO’s Rs.399 for
84 days plan on offer today and the proposed Rs.153/m plan for JioPhone users. We
assume monthly revenue per user increases 10% pa in our forecast horizon, as RIL
potentially monetizes additional apps/content. However in view of ongoing high industry
competition we note downside risk to this assumption.
JioPhone – we view this as an enabler for JIO’s rural / ‘bottom of the pyramid’ penetration
aspirations rather than a significant revenue contributor. We assume 30% of JIO’s
subscribers opt for JioPhone. Given the Rs.1500 up-front deposit is refunded in 3 years we
see the cash flow impact similar to long-dated accounts payable.
Separately, we have also pencilled in revenue for JIO digital TV and business services.
Fig 33 JIO subscriber modelling: 240 million subscribers by FY25 if market share ramps to 15%
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
JIO Cost Assumptions
Our cost structure estimates for JIO are developed using Airtel and Idea as a reference.
Access Charge – 11% of gross revenue
License Fees – 8% of net revenue
Spectrum Usage Charge – 3% of net revenue
Network operation cost – High fixed cost, 20% of steady-state revenue, c.300 bps below
Airtel and Idea due to 4G-only network.
Employee and other opex as % of revenue assumed gradually fades (along with higher
revenue) to be in line with Airtel by FY25.
EBITDA, EBIT outlook
JIO EBITDA margin of ~10-15% in FY18 rising to 40-45% by FY25 (Airtel 35%, Idea 29%
in FY17). For perspective, RIL aspires to achieve >50% EBITDA margin by FY21.
Can the exceptional
growth momentum
for JIO be
extrapolated?
>50% EBITDA
margin per JIO
aspiration
Macquarie Research Reliance Industries
25 July 2017 27
Standalone JIO EBITDA of Rs.20-25 billion for FY18, rising to Rs.310 billion (on Rs.760bn
revenue) by FY25, in our base case.
We assume an average depreciation and amortization period of 15 years (spectrum
amortized over 20 years but some of this was acquired in 2010; Airtel 9 years). This
translates to an annual D&A headwind of c.Rs.120 billion, albeit still subject to RIL
deeming JIO “commercial”. We assume D&A of Rs.90 billion for FY18-19E.
Under our modelling assumptions JIO achieves EBIT breakeven only in FY22; Rs(25)bn-
(40)bn in FY18/19/20E.
JIO standalone net income breakeven only in FY23, after factoring standalone interest
expenses of Rs60 billion.
Fig 34 JIO achieves EBIT breakeven only in 4-5 years, we estimate
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
Returns, Capex, FCF outlook
Rs.100-120 billion/pa average capex modelled in our forecast horizon using the average of
the following approaches – capex/sales, capex/subscriber, capex/depreciation.
Our modelling assumes capex metrics for JIO gradually falls in line with that of Airtel –
0.25x sales, c.700/subscriber, 1.1x depreciation.
Putting our EBITDA and capex estimates together, we see the drag on group FCF for
FY18 at c.Rs.105 billion, FY19 at c.Rs.45bn and FY20 at c.Rs.15bn. We have JIO turning
FCF positive only in FY21e.
Our estimates imply JIO standalone return on invested capital (ROIC) of 0% and 13% in
FY20/25e.
Cash return on capital employed (CROCE), adjusting for depreciation and amortization,
expands to 5%/14% by FY20/25e.
Significant
spectrum
amortization
headwind
JIO a drag on group
FCF till FY21e
Macquarie Research Reliance Industries
25 July 2017 28
Fig 35 Free cash flow drag till FY22e; cash return on capital employed gradually expands to 14% by FY25e
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
JIO what if…
Given the high degree of modelling uncertainty, we outline a few scenarios below. Our
estimates below reflect un-risked outcomes for FY25E.
JIO India data revenue market share expands to 50% by FY25 (MQ base 30%)?
Number of subscribers could expand to 400 million, 35% higher than our base case.
Standalone JIO EBITDA could rise to Rs.570 billion, 80% above our base assumption.
Implied 50% EBITDA margin higher than base due to operating leverage on fixed
network opex.
Adjusting for depreciation & amortization (Rs.130bn) and interest (Rs.60bn),
standalone JIO profit before tax for could be Rs.390 billion, a very significant 3x our
base case.
At the group level, our consolidated RIL EPS estimate could rise by 9-34% in FY20/25.
Amazon/Netflix style optionality?
A quick glance at JIO’s website is sufficient to envisage bullish content-related
optionality scenarios. For every Rs.100 billion in incremental revenue, the impact on
standalone JIO EBITDA is c.20% and RIL consolidated EPS is c.5%.
Superior cost structure translates to a 50% EBITDA margin for JIO (MQ 43%, Airtel
35%)?
Every 100bps change in JIO EBITDA margin has a 2.5%/0.5% impact on standalone
JIO EBITDA and consolidated EPS. Applying a 50% EBITDA margin to our base case
revenue estimate of Rs.730bn in FY25e, implies an uplift of 17% in standalone JIO
EBITDA and 4% in consolidated EPS.
JIO guidance
implies meaningful
upside risk to our
base case
Macquarie Research Reliance Industries
25 July 2017 29
Fig 36 Telecom (JIO) Financial Summary; high error risk given limited financials/guidance till date
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
JIO InfocommFY18
(Mar-18)
FY19
(Mar-19)
FY20
(Mar-20)
FY21
(Mar-21)
FY22
(Mar-22)
FY23
(Mar-23)
FY24
(Mar-24)
FY25
(Mar-25)
India Total Mobile Connections - period end (million)1,204 1,272 1,342 1,387 1,433 1,479 1,526 1,573
Y-o-Y change 6% 6% 5% 3% 3% 3% 3% 3%
… of which Mobile Broadband Users in India (million)457 534 581 619 659 700 743 787
Y-o-Y change 15% 17% 9% 7% 6% 6% 6% 6%
% of total connections 38% 42% 43% 45% 46% 47% 49% 50%
RIL JIO subscribers - period end (mn) 120 136 153 168 184 201 218 236
RIL JIO market share of total connections 10% 11% 11% 12% 13% 14% 14% 15%
RIL JIO market share of mobile broadband users 26% 26% 26% 27% 28% 29% 29% 30%
Segment Financials (INR million)
Total Revenue 164,636 257,126 344,061 423,850 500,805 578,855 665,593 762,298
Y-o-Y growth nmf 56% 34% 23% 18% 16% 15% 15%
Access charges -18,110 -28,284 -37,847 -42,385 -45,072 -46,308 -53,247 -60,984
Licence fees -11,722 -18,307 -24,497 -30,517 -36,459 -42,604 -48,988 -56,105
Spectrum usage charge -4,396 -6,865 -9,186 -11,444 -13,672 -15,976 -18,370 -21,039
Network operations costs -70,000 -90,000 -110,000 -140,000 -145,000 -150,000 -155,000 -160,000
Operating expenses -104,228 -143,456 -181,530 -224,346 -240,203 -254,889 -275,605 -298,128
Gross Profit 60,408 113,669 162,531 199,504 260,602 323,967 389,987 464,170
Gross Margin 37% 44% 47% 47% 52% 56% 59% 61%
Employee Benefits -8,232 -12,856 -17,203 -21,193 -25,040 -28,943 -33,280 -38,115
Other operating expenses -32,927 -38,569 -51,609 -63,578 -75,121 -86,828 -99,839 -114,345
EBITDA 19,249 62,244 93,719 114,734 160,441 208,196 256,869 311,710
EBITDA Margin 12% 24% 27% 27% 32% 36% 39% 41%
Y-o-Y growth nmf 223% 51% 22% 40% 30% 23% 21%
Depreciation & Amortization -89,475 -91,231 -122,757 -122,386 -122,206 -122,351 -122,706 -123,193
EBIT (Operating Income) -70,226 -28,987 -29,038 -7,652 38,236 85,844 134,163 188,517
EBIT Margin -43% -11% -8% -2% 8% 15% 20% 25%
Other Non-Operating Income 10 1,832 6,718 5,460 2,566 1,576 2,351 4,671
Interest expense -31,051 -45,051 -59,051 -62,551 -62,551 -62,551 -62,551 -62,551
Profit before Tax -101,267 -72,206 -81,371 -64,743 -21,750 24,870 73,963 130,637
Income Taxes 0 0 0 0 0 -8,207 -24,408 -43,110
Net Income -101,267 -72,206 -81,371 -64,743 -21,750 16,663 49,555 87,527
Net Income Margin -62% -28% -24% -15% -4% 3% 7% 11%
ROA -5% -3% -4% -3% -1% 1% 2% 4%
ROACE (as defined by RIL) -5% -2% -2% -1% 3% 7% 12% 17%
Cash ROCE 1% 5% 7% 9% 11% 14% 16% 19%
JIO Cash Flows (INR million)
EBITDA 19,249 62,244 93,719 114,734 160,441 208,196 256,869 311,710
Net Operating Cash Flow 19,259 64,076 100,437 120,194 163,007 201,565 234,812 273,271
Net Investing Cash Flow -124,814 -108,165 -117,405 -119,894 -124,603 -127,884 -130,227 -131,425
Net Financing Cash Flow 141,811 141,811 -8,189 -58,189 -58,189 -58,189 -58,189 -58,189
Cash inflow / (outflow) 36,257 97,722 -25,157 -57,889 -19,785 15,492 46,396 83,657
CFO - Capex (consolidated) -105,343 -43,878 -16,757 512 38,615 73,892 104,796 142,058
CFO - Capex - Dividends (consolidated) -105,343 -43,878 -16,757 512 38,615 73,892 104,796 142,058
Macquarie Research Reliance Industries
25 July 2017 30
(4) Upstream Oil & Gas Production today less than half of peak. Further declines till FY20E. Growth from FY21
due to ramp-up of three-phase R-series gas project (RIL 60%, BP 40%).
Mild uplift in average gas prices due to mix improvement. Oil ~$50 till 2019e.
Segment EBIT to remain in the red until start-up of R-series deepwater gas.
Possible mild upside risk to domestic gas prices; every 10% uplift makes a 0.5% impact
on RIL consolidated EPS.
Fig 37 FY18-20E EBITDA to remain subdued at FY17 levels; c.25% of FY11 peak
Fig 38 Upstream Oil & Gas – segment EBIT to remain in the red until start-up of R-series deepwater gas
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
RIL’s total oil and gas production is now effectively half of peak levels seen in FY11. We
model -5% y/y in FY18, followed by modest 1-2% declines in FY19-20 (natural declines offset
by ramp of Sohagpur CBM), and then an average 22% pa growth in FY21-23 due to the start-
up of R-Series deepwater gas fields (RIL 60%, BP 40%).
Production at RIL’s once flagship KG-D6 gas field is today a mere 14% of peak. Declines
accelerated in FY17 (-27% Y/Y) and we assume further 10% pa declines in our forecasts.
Panna-Mukta and Tapti – Production today c.40% of peak. 15% pa declines pencilled
versus -14% avg. FY16-17. PSC for Panna-Mukta expires in Dec-2019. Tapti field plug
and abandonment of wells under-way and offshore platforms will be transferred to ONGC.
Upstream Y/Y EBITDA movements(Rs., billion) FY17 FY18 FY19 FY20
FY0 EBITDA 69 13 12 12
Gas production -17 -7 0 0
Oil production -2 -2 -1 -1
Gas Price ∆ -7 4 2 3
Oil Price ∆ 0 1 0 1
FX / Other -31 4 0 0
FY1 EBITDA 13 12 12 15
Y/Y change -82% -6% 0% 25%
Macquarie Research Reliance Industries
25 July 2017 31
Sohagpur CBM – Phase-1 of this project involved drilling and completion of 200 wells and
the installation of two gas gathering facilities. RIL plans to drill an additional 600-800 wells
on the block. Commercial production started in April 2017 and the post de-watering ramp-
up to peak production of c.100 million cubic feet/day (mmscfd, 12% of RIL gas production
in FY17) is anticipated in 15-18 months.
R-Series deepwater gas – Notwithstanding the significant underperformance at the main
KG-D6 fields, in June 2017, RIL and BP announced plans to develop the R-series deep
water gas fields. The three-phase development plan entails a subsea tieback to the
existing infrastructure at the KG-D6 block. RIL and BP have guided for a cumulative capex
of US$6 billion for this project. Phase-1 target completion is in 2020 with peak production
anticipated at 425 mmscfd. At full-capacity, 2022+, this project is expected to grow to 1
billion cubic feet/day (bcf/d), or 1.2x total gross gas production today.
U.S. shale operations – Limited/no drilling activity at JV projects with Carrizo, Chevron,
and Pioneer. Cumulative gas production was down 15% y/y in FY17. We do not assume
any meaningful uptick in activity due to our muted ~US$3.0/mmbtu U.S. gas price outlook.
Fig 39 RIL Oil and Gas Production Outlook – structural declines till FY20, followed by growth from R-series
Fig 40 Oil & Gas Realizations – mild uplift in average gas prices due to mix improvement; oil flat
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
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Fig 41 Upstream Oil & Gas Financial Summary
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
Upstream Oil & GasFY11
(Mar-11)
FY12
(Mar-12)
FY13
(Mar-13)
FY14
(Mar-14)
FY15
(Mar-15)
FY16
(Mar-16)
FY17
(Mar-17)
FY18
(Mar-18)
FY19
(Mar-19)
FY20
(Mar-20)
FY21
(Mar-21)
FY22
(Mar-22)
FY23
(Mar-23)
Field Production
KG-D6 (60%) 8.8 5.6 3.3 2.3 2.3 1.8 1.3 0.9 0.7 0.6 0.6 0.5 0.5
Panna-Mukta, Tapti (30%) 10.5 11.0 8.7 7.8 7.4 7.0 6.3 4.7 4.0 3.6 3.3 2.9 2.6
U.S. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total Oil Production - Gross (million barrels) 19.3 16.6 12.0 10.1 9.7 8.8 7.5 5.6 4.7 4.3 3.8 3.5 3.1
RIL Oil Production - Net (million barrels) 8.4 6.7 4.6 3.7 3.6 3.2 2.6 2.0 1.6 1.5 1.3 1.2 1.1
RIL Oil Production Y-o-Y % 30% -21% -31% -19% -3% -12% -17% -26% -16% -10% -10% -10% -10%
KG-D6 (60%) 720 551 336 178 158 139 101 79 71 64 61 58 55
Panna-Mukta, Tapti (30%) 147 145 115 93 85 72 63 54 43 34 31 28 25
R-Series Deepwater (60%) -- 3 phases 155 265 374
Sohagpur CBM 13 26 38 38 38 38
U.S. (net share reported) 0 0 119 161 200 205 163 135 128 122 116 110 104
Total Gas Production - Gross (bcf) 868 696 570 432 442 416 326 280 268 258 401 498 597
RIL Gas Production - Net (bcf) 476 374 355 296 320 310 242 211 209 209 293 350 408
RIL Gas Production Y-o-Y % 34% -21% -5% -17% 8% -3% -22% -13% -1% 0% 40% 20% 16%
RIL Total Oil & Gas Production (mn boe) 87.8 69.0 63.7 53.1 56.9 54.9 42.9 37.1 36.5 36.3 50.1 59.5 69.0
Y-o-Y % 34% -21% -8% -17% 7% -4% -22% -14% -2% -1% 38% 19% 16%
Realizations
Oil Price Realized, average (US$/bbl) 82 109 110 106 87 48 49 52 48 53 60 65 65
Discount to Brent % -5% -5% 0% -1% 1% 0% -1% -1% -1% -1% -1% -1% -1%
Gas Price Realized, average (US$/mmbtu) 4.5 4.5 4.7 5.0 4.7 3.7 3.4 3.6 3.7 4.0 4.8 5.1 5.3
Prem/Discount to Henry Hub % 6% 18% 54% 21% 16% 47% 18% 11% 19% 24% 37% 28% 31%
Segment Financials (INR million)
Segment Revenue 173,253 141,740 112,080 109,020 115,340 75,270 51,910 47,408 45,087 47,817 84,687 109,242 130,695
Opex -32,479 -37,340 -42,920 -42,100 -39,710 -6,140 -39,340 -35,579 -33,217 -32,997 -45,610 -54,160 -62,794
EBITDA 140,774 104,400 69,160 66,920 75,630 69,130 12,570 11,829 11,870 14,819 39,077 55,082 67,901
Depreciation & Amortization -73,774 -51,910 -40,280 -38,810 -43,820 -32,830 -28,410 -27,446 -29,671 -32,943 -36,002 -38,861 -41,535
Segment EBIT 67,000 52,490 28,880 28,110 31,810 36,300 -15,840 -15,617 -17,801 -18,123 3,075 16,220 26,365
Capital Employed (as defined by RIL) 607,970 398,860 493,190 630,990 719,220 361,860 359,908 389,088 431,985 472,095 509,597 544,662 577,448
ROA 9% 8% 5% 4% 3% 5% -3% -3% -3% -3% 0% 2% 3%
ROACE (as defined by RIL) 10% 8% 5% 4% 4% 5% -3% -3% -3% -3% 0% 2% 4%
Macquarie Research Reliance Industries
25 July 2017 33
(5) Organized Retail, Other Reliance Retail includes several standalone brands in a wide range of categories:
convenience stores, supermarkets, speciality electronics stores, low- and high-end
fashion retail (on/offline), jewellery, footwear, etc.
Revenue has grown by an average 30% pa over the past five years, +56% in FY17. We
assume an average 30% pa revenue growth till FY20E (expansion of floor space and
higher per-store revenue) and stable EBITDA margins.
Despite strong standalone growth modelled, FY25e contribution of Organized Retail and
other businesses to group EBIT remains below 5% in our modelling.
Fig 42 Strong growth of a low base; contribution to group EBIT to remain under 5%
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
ORGANIZED RETAILFY14
(Mar-14)
FY15
(Mar-15)
FY16
(Mar-16)
FY17
(Mar-17)
FY18
(Mar-18)
FY19
(Mar-19)
FY20
(Mar-20)
FY21
(Mar-21)
FY22
(Mar-22)
FY23
(Mar-23)
Daycount 365 365 365 365 365 365 365 365 365 365
Exchange Rate (INR/USD) 59.5 61.1 64.5 67.0 65.0 65.0 65.0 65.0 65.0 65.0
Operationals
Retail stores at the end 1,691 2,621 3,245 3,616 3,724 3,874 4,024 4,174 4,324 4,474
# of stores added 241 930 624 371 108 150 150 150 150 150
Y-o-Y % 17% 55% 24% 11% 3% 4% 4% 4% 4% 3%
Average Per Store Revenue, annualized (INR Mn/store) 91.9 82.7 72.6 96.3 129.4 155.3 178.6 196.5 216.1 237.7
Y-o-Y % 17% -10% -12% 33% 34% 20% 15% 10% 10% 10%
Segment Financials (INR million)
Segment Revenue 144,960 176,400 216,120 337,650 476,183 593,089 708,845 809,201 922,539 1,050,453
Y-o-Y % 34% 22% 23% 56% 41% 25% 20% 14% 14% 14%
EBITDA 3,520 7,660 8,510 11,790 16,597 20,758 24,810 28,322 32,289 36,766
EBITDA Margin (%) 2.4% 4.3% 3.9% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Depreciation & Amortization -2,340 -3,490 -3,470 -3,950 -4,558 -4,688 -4,566 -4,478 -4,398 -4,326
Segment EBIT 1,180 4,170 5,040 7,840 12,038 16,070 20,244 23,844 27,891 32,440
EBIT Margin (%) 0.8% 2.4% 2.3% 2.3% 2.5% 2.7% 2.9% 2.9% 3.0% 3.1%
Capital Employed (as defined by RIL) 59,090 62,010 63,200 71,857 73,908 71,973 70,584 69,324 68,194 67,191
Capex 11,490 3,680 2,690 7,810 1,620 2,363 2,481 2,605 2,735 2,872
ROA 1% 4% 4% 5% 8% 10% 13% 16% 19% 23%
ROACE (as defined by RIL) 2% 5% 6% 9% 12% 17% 21% 26% 30% 36%
Macquarie Research Reliance Industries
25 July 2017 34
Residual Income & Sensitivities
Fig 43 RIL residual income valuation summary
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
(INR, billion) FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
NOPAT (adj. for impairments) 232 257 269 295 323 385 441 488 527 572
Beginning Net Operating Assets 2,348 2,903 3,171 3,472 3,713 3,931 4,076 4,211 4,313 4,411
Return on Net Operating Assets (RNOA) 9.9% 8.9% 8.5% 8.5% 8.7% 9.8% 10.8% 11.6% 12.2% 13.0%
Cost of Equity - unlevered 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
Residual RNOA 0.9% -0.2% -0.6% -0.5% -0.3% 0.8% 1.8% 2.5% 3.2% 3.9%
Residual Income 20 -5 -18 -19 -12 30 73 107 137 173
PV of Interim Residual Income 275 Terminal Growth Rate 4.0%
PV of Terminal Value 1,947
Beginning Net Operating Assets 3,171 RIL Post-tax Cost of Debt 4.8%
Beginning Net (Debt) / cash -1,408 Cost of Equity - Unlevered 9.0%
Minorities -29 Cost of Equity - Levered 10.2%
Equity Value (INR, billion) 3,955 WACC 8.6%
Shares Outstanding #, mn 2,951
Equity Value (INR/sh) 1,340
Base Case
Refining Margin FY18 (US$/bbl) 11.3 10.6 11.0 11.3 11.7 12.9 For every $1/bbl change in margin
Refining Margin FY18-20 avg (US$/bbl) 12.0 11.0 11.5 12.0 12.5 14.0
FY18 Group EBITDA 560 538 550 560 572 606 5.1%
FY19 Group EBITDA 618 588 605 618 635 683 5.0%
FY18 EPS (INR) 97.9 92 95 98 101 110 7.5%
FY19 EPS (INR) 100.9 93 97 101 105 118 8.1%
Residual Income (INR/sh) 1,340 1,187 1,272 1,340 1,425 1,664 11.6%
Petchem Margin FY18 (US$/ton) 524 472 498 524 551 629 For every 5% change
Petchem Margin FY18-20 avg (US$/ton) 529 476 503 529 556 635
FY18 Group EBITDA 560 528 544 560 576 624 2.9%
FY19 Group EBITDA 618 573 596 618 641 710 3.7%
FY18 EPS (INR) 97.9 90 94 98 102 114 4.2%
FY19 EPS (INR) 100.9 89 95 101 107 125 6.0%
Residual Income (INR/sh) 1,340 1,136 1,238 1,340 1,442 1,749 7.6%
# of subscribers FY18-23 avg. (mn) 153 84 115 153 175 232
% of mobile data users FY18-23 avg. 27% 15% 20% 27% 30% 40% For every 1% change in mkt share
FY18 Group EBITDA 560 546 552 560 564 575 0.2%
FY19 Group EBITDA 618 574 594 618 634 675 0.7%
FY18 EPS (INR) 97.9 94 96 98 99 102 0.3%
FY19 EPS (INR) 100.9 90 95 101 105 115 1.1%
Residual Income (INR/sh) 1,340 499 782 1,340 1,659 2,457 6.2%
Refining Utilization FY18 117% 107% 111% 117% 119% 123%
Refining Utilization FY18-20 avg 117% 105% 110% 117% 120% 125% For every 1pp of utilization
FY18 Group EBITDA 560 541 550 560 565 573 0.3%
FY19 Group EBITDA 618 594 606 618 625 635 0.3%
FY18 EPS (INR) 97.9 93 95 98 99 101 0.4%
FY19 EPS (INR) 100.9 94 97 101 103 105 0.5%
Residual Income (INR/sh) 1,340 1,218 1,274 1,340 1,373 1,425 0.7%
Retail Rev Growth FY18-20 cagr 28% 15% 24% 28% 35% 40% For every 5% change
FY18 EPS (INR) 97.9 97 98 98 98 99 0.4%
FY19 EPS (INR) 100.9 99 100 101 102 103 0.7%
Residual Income (INR/sh) 1,340 1,287 1,322 1,340 1,372 1,400 1.9%
Scenarios
Macquarie Research Reliance Industries
25 July 2017 35
Financial Summary Fig 44 Reliance Industries Summary Financials
Source: Company data, Macquarie Research, July 2017. Estimates from FY18.
RELIANCE INDUSTRIES (RIL IN)Underperform 12-Month Price Target
P&L - Consolidated (INR, bn) FY16 FY17 FY18 FY19 FY20 Generic Assumptions FY16 FY17 FY18 FY19 FY20
USD/INR 64.5 67.0 65.0 65.0 65.0
Net Revenues 2,934 3,302 3,608 3,636 4,043 Brent ($/bbl) 47.7 49.0 52.0 48.9 53.8
Gross Profit 853 931 1,086 1,171 1,271 Refining & Marketing
Refinery Utilization 116% 117% 117% 117% 117%
EBITDA 417 462 560 618 691 Crude Throughput (mn tons) 69.5 70.1 70.0 70.2 70.2
...Y-o-Y growth 9% 11% 21% 10% 12% Singapore GRM (US$/bbl) 7.5 5.8 6.1 6.5 6.8
Reliance GRM (US$/bbl) 10.8 11.0 11.3 11.7 12.8
Refining & Marketing 235 251 253 253 285 Delta to Singapore GRM (US$/bbl) 3.3 5.2 5.2 5.2 6.0
Petrochemicals 102 130 178 205 210 Retail Stations Operational (#) 950 1,221 1,521 1,821 2,121
Telecom (JIO) - - -37 -29 -29
Upstream Oil & Gas 36 -16 -16 -18 -18 Petchems
Organized Retail 5 8 12 16 20 Production (million tons) 24.7 24.9 29.6 31.1 31.1
Others segments 11 5 4 4 4 Gross Spread (US$/mt) 515 525 524 524 540
Unallocated / other -88 -32 -36 -38 -42 EBIT (US$/mt) 64 78 92 102 104
EBIT 301 345 358 394 431
Telecom (JIO)
Other Income 121 94 76 75 86 No. of Subscribers (mn) 0 109 120 136 153
Interest Expense -37 -38 -55 -73 -83 Market share of total connections 0% 10% 10% 11% 11%
Income Taxes -89 -102 -91 -99 -109 Market share of data users 0% 27% 26% 26% 26%
...Tax Rate 23% 25% 25% 25% 25% Average revenue per user (INR/month) 151 166 182
Net Income (Reported) 297 299 289 298 327
Net Income (Adjusted) 252 299 278 298 327 Upstream Oil and Gas
Total O&G Production (mmboe) 54.9 42.9 37.1 36.5 36.3
Shares outstanding (million) 2,948 2,951 2,951 2,951 2,951 Realized Oil Price (US$/bbl) 47.8 48.7 51.6 48.4 53.3
Reported EPS (INR/sh) 100.9 101.3 97.9 100.9 110.7 Realized Gas Price (US$/mmbtu) 3.7 3.4 3.6 3.7 4.0
Clean EPS (INR/sh) 85.4 101.3 94.2 100.9 110.7
Organized Retail
DPS declared (INR/sh) 10.5 11.0 12.0 13.0 14.0 # of stores (period end) 3,245 3,616 3,724 3,874 4,024
Dividend Payout 10% 11% 12% 13% 13% Average revenue per store (mn) 73 96 129 155 179
Cash Flows (INR, billion) FY16 FY17 FY18 FY19 FY20 Key Multiples & Ratios FY16 FY17 FY18 FY19 FY20
EBITDA 417 462 560 618 691 Gross Margin 29% 28% 30% 32% 31%
Change in Working Capital 78 155 -4 -66 -56 EBITDA Margin 14% 14% 16% 17% 17%
Tax Paid -86 -101 -91 -99 -109 Net Income Margin 10% 9% 8% 8% 8%
Other -28 -20 0 0 0
Operating Cashflow 381 496 465 454 527 ROACE 12% 10% 9% 9% 9%
Acquisitions 65 92 0 0 0 ROA 5% 5% 4% 4% 4%
Capex -469 -781 -476 -460 -445 ROE 13% 11% 10% 9% 10%
Asset Sales & Divestments 3 15 0 0 0
Other 39 11 0 0 0 EV/EBITDA 10.4x 11.6x 10.9x 10.0x 9.0x
Investing Cashflow -362 -663 -476 -460 -445 P/E 10.4x 13.3x 16.6x 16.1x 14.6x
Dividends Paid -73 0 -32 -35 -38 P/CEPS 8.4x 9.6x 9.8x 9.1x 8.1x
Debt Movements 133 207 0 250 0 P/B 1.3x 1.5x 1.5x 1.4x 1.3x
Other -93 -121 145 -73 -83
Financial Cashflow -32 86 112 141 -122 Net Debt/Equity 55% 53% 42% 42% 40%
Net Debt/Net Debt & Equity 35% 35% 30% 30% 29%
Net Change in Cash -13 -81 101 134 -40 FCF yield -2% -5% 0% 0% 1%
FCF: CFO - Capex -88 -286 -11 -7 82 Dividend yield 1% 1% 1% 1% 1%
Balance Sheet (INR billion) FY16 FY17 FY18 FY19 FY20 RIL SOTP Valuation summary
Cash & Equivalents 110 30 131 265 225
Inventory 465 535 522 508 572
Account Receivables 45 82 69 70 77
Property, Plant & Equipment 3,282 4,178 4,291 4,377 4,411
Other 2,088 2,244 2,244 2,244 2,244
Total Assets 5,990 7,068 7,258 7,464 7,531
ST & LT Debt 1,652 1,837 1,837 2,087 2,087
Accounts Payable 603 766 737 657 673
Other 1,386 1,799 1,649 1,499 1,349
Total Liabilities 3,641 4,402 4,223 4,243 4,109
Shareholders Equity 2,349 2,666 3,035 3,221 3,422
Note: March financial year end. FY18 refers to period between April-2017 and March-2018.
Rs.1,350
0
400
800
1200
1600 Rs/sh
Macquarie Research Reliance Industries
25 July 2017 36
Macquarie Quant View
The quant model currently holds a neutral view on Reliance Industries. The
strongest style exposure is Price Momentum, indicating this stock has had
strong medium to long term returns which often persist into the future. The
weakest style exposure is Profitability, indicating this stock is not efficiently
converting investments to earnings; proxied by ratios like ROE or ROA.
Displays where the
company’s ranked based on
the fundamental consensus
Price Target and
Macquarie’s Quantitative
Alpha model.
Two rankings: Local market
(India) and Global sector
(Energy)
198/599 Global rank in
Energy
% of BUY recommendations 59% (22/37)
Number of Price Target downgrades 0
Number of Price Target upgrades 2
Macquarie Alpha Model ranking Factors driving the Alpha Model
A list of comparable companies and their Macquarie Alpha model score
(higher is better).
For the comparable firms this chart shows the key underlying styles and their
contribution to the current overall Alpha score.
Macquarie Earnings Sentiment Indicator Drivers of Stock Return
The Macquarie Sentiment Indicator is an enhanced earnings revisions
signal that favours analysts who have more timely and higher conviction
revisions. Current score shown below.
Breakdown of 1 year total return (local currency) into returns from dividends, changes
in forward earnings estimates and the resulting change in earnings multiple.
What drove this Company in the last 5 years How it looks on the Alpha model
Which factor score has had the greatest correlation with the company’s
returns over the last 5 years.
A more granular view of the underlying style scores that drive the alpha (higher is
better) and the percentile rank relative to the sector and market.
Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com)
Fu
nd
am
en
tals
Quant
Local market rank Global sector rank
Attractive
0.0
1.1
1.4
1.7
1.8
2.2
2.4
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
Reliance Industries
Thai Oil
S-Oil
Bharat Petroleum
SK Innovation
Indian Oil
Hindustan Petroleum
-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100%
Reliance Industries
Thai Oil
S-Oil
Bharat Petroleum
SK Innovation
Indian Oil
Hindustan Petroleum
Valuations Growth Profitability Earnings
Momentum
Price
Momentum
Quality
0.2
0.9
-0.1
0.0
0.6
0.9
0.8
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0
Reliance Industries
Thai Oil
S-Oil
Bharat Petroleum
SK Innovation
Indian Oil
Hindustan Petroleum
-90% -40% 10% 60%
Reliance Industries
Thai Oil
S-Oil
Bharat Petroleum
SK Innovation
Indian Oil
Hindustan Petroleum
Dividend Return Multiple Return Earnings Outlook 1Yr Total Return
-28%
-27%
-24%
-23%
49%
50%
52%
53%
-60% -40% -20% 0% 20% 40% 60%
⇐ Negatives Positives ⇒
Turnover (USD) 20 Day
Momentum 12 Month
Momentum 3 Month
Relative Turnover
Price to Earnings FY1
EV/EBITDA (NTM)
Dividend Yield FY1
EV/EBITDA FY1
0 1
Technicals & TradingRisk
LiquidityCapital & Funding
QualityPrice Momentum
Earnings MomentumProfitability
Growth
ValuationAlpha Model Score
-0.95-0.14
1.10-0.32
-0.44 0.22
0.18-0.52-0.07
-0.39 0.02
0 1
Normalized
Score
0 50 100
Percentile relative
to sector(/599)
0 50 100
Percentile relative
to market(/432)
Macquarie Research Reliance Industries
25 July 2017 37
Reliance Industries (RIL IN) Quarterly Results 4Q/17A 1Q/18E 2Q/18E 3Q/18E Profit & Loss 2017A 2018E 2019E 2020E
Revenue m 928,890 905,370 874,296 920,968 Revenue m 3,301,800 3,608,226 3,635,662 4,043,392 Gross Profit m 251,920 253,410 260,048 279,744 Gross Profit m 930,820 1,085,632 1,170,612 1,271,029 Cost of Goods Sold m 676,970 651,960 614,248 641,224 Cost of Goods Sold m 2,370,980 2,522,594 2,465,050 2,772,363 EBITDA m 122,430 125,540 138,179 146,083 EBITDA m 461,940 559,793 618,481 691,291
Depreciation m 33,540 19,500 60,550 60,550 Depreciation m 116,460 201,470 224,917 260,087 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 88,890 106,040 77,628 85,532 EBIT m 345,480 358,323 393,565 431,204
Net Interest Income m -5,410 -11,190 -13,776 -13,776 Net Interest Income m -38,490 -55,103 -73,470 -83,470 Associates m 0 0 0 0 Associates m 0 0 0 0 Exceptionals m 0 10,870 0 0 Exceptionals m 0 10,870 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 19,310 10,510 18,927 18,927 Other Pre-Tax Income m 93,350 64,979 75,529 86,279 Pre-Tax Profit m 102,790 116,230 82,780 90,684 Pre-Tax Profit m 400,340 379,069 395,624 434,013 Tax Expense m -21,930 -25,440 -20,695 -22,671 Tax Expense m -102,010 -91,150 -98,906 -108,503 Net Profit m 80,860 90,790 62,085 68,013 Net Profit m 298,330 287,920 296,718 325,510 Minority Interests m -100 290 198 217 Minority Interests m 680 920 948 1,040
Reported Earnings m 80,760 91,080 62,283 68,230 Reported Earnings m 299,010 288,839 297,666 326,549 Adjusted Earnings m 80,760 80,210 62,283 68,230 Adjusted Earnings m 299,010 277,969 297,666 326,549
EPS (rep) 27.37 30.86 21.11 23.12 EPS (rep) 101.33 97.88 100.87 110.66 EPS (adj) 27.37 27.18 21.11 23.12 EPS (adj) 101.33 94.19 100.87 110.66 EPS Growth yoy (adj) % -16.4 12.7 -13.6 -9.1 EPS Growth (adj) % 18.6 -7.0 7.1 9.7
PE (rep) x 15.9 16.5 16.0 14.6 PE (adj) x 15.9 17.1 16.0 14.6
EBITDA Margin % 13.2 13.9 15.8 15.9 Total DPS 11.00 12.00 13.00 14.00 EBIT Margin % 9.6 11.7 8.9 9.3 Total Div Yield % 0.7 0.7 0.8 0.9 Earnings Split % 27.0 28.9 22.4 24.5 Basic Shares Outstanding m 2,951 2,951 2,951 2,951 Revenue Growth % 45.3 26.7 7.1 9.4 Diluted Shares Outstanding m 2,951 2,951 2,951 2,951 EBIT Growth % 34.9 24.8 -7.6 -2.3
Profit and Loss Ratios 2017A 2018E 2019E 2020E Cashflow Analysis 2017A 2018E 2019E 2020E
Revenue Growth % 12.5 9.3 0.8 11.2 EBITDA m 461,940 559,793 618,481 691,291 EBITDA Growth % 10.7 21.2 10.5 11.8 Tax Paid m -102,010 -91,150 -98,906 -108,503 EBIT Growth % 14.6 3.7 9.8 9.6 Chgs in Working Cap m 155,810 -3,767 -66,010 -56,246 Gross Profit Margin % 28.2 30.1 32.2 31.4 Net Interest Paid m 0 0 0 0 EBITDA Margin % 14.0 15.5 17.0 17.1 Other m -20,240 0 0 0 EBIT Margin % 10.5 9.9 10.8 10.7 Operating Cashflow m 495,500 464,876 453,565 526,543 Net Profit Margin % 9.1 7.7 8.2 8.1 Acquisitions m 92,300 0 0 0 Payout Ratio % 10.9 12.7 12.9 12.7 Capex m -781,090 -476,154 -460,315 -444,673 EV/EBITDA x 14.2 11.7 10.6 9.5 Asset Sales m 14,820 0 0 0 EV/EBIT x 19.0 18.3 16.7 15.2 Other m 11,050 -140 -140 -140
Investing Cashflow m -662,920 -476,294 -460,455 -444,813 Balance Sheet Ratios Dividend (Ordinary) m -0 -32,461 -35,412 -38,363 ROE % 11.9 9.8 9.5 9.8 Equity Raised m 0 0 0 0 ROA % 5.3 5.0 5.3 5.8 Debt Movements m 86,170 144,897 176,530 -83,470 ROIC % 6.6 6.1 6.2 6.4 Other m 0 0 0 0 Net Debt/Equity % 67.8 56.2 56.5 54.4 Financing Cashflow m 86,170 112,436 141,118 -121,833 Interest Cover x 9.0 6.5 5.4 5.2
Price/Book x 1.8 1.6 1.5 1.4 Net Chg in Cash/Debt m -81,250 101,019 134,228 -40,104 Book Value per Share 903.5 1,028.5 1,091.4 1,159.5
Free Cashflow m -285,590 -11,278 -6,750 81,870
Balance Sheet 2017A 2018E 2019E 2020E Cash m 30,230 131,249 265,477 225,373 Receivables m 81,770 69,076 69,601 77,407 Inventories m 534,600 521,874 507,975 572,130 Investments m 527,510 527,510 527,510 527,510 Fixed Assets m 4,177,510 4,291,324 4,376,722 4,411,308 Intangibles m 48,920 48,920 48,920 48,920 Other Assets m 1,667,480 1,667,620 1,667,760 1,667,900 Total Assets m 7,068,020 7,257,573 7,463,965 7,530,548 Payables m 765,950 736,763 657,379 673,095 Short Term Debt m 315,280 315,280 315,280 315,280 Long Term Debt m 1,521,480 1,521,480 1,771,480 1,771,480 Provisions m 0 0 0 0 Other Liabilities m 1,799,050 1,649,050 1,499,050 1,349,050 Total Liabilities m 4,401,760 4,222,573 4,243,189 4,108,905
Shareholders' Funds m 2,666,260 3,035,000 3,220,776 3,421,643 Minority Interests m 0 0 0 0 Other m 0 0 0 0 Total S/H Equity m 2,666,260 3,035,000 3,220,776 3,421,643
Total Liab & S/H Funds m 7,068,020 7,257,573 7,463,965 7,530,548
All figures in INR unless noted.
Source: Company data, Macquarie Research, July 2017
Macquarie Research Reliance Industries
25 July 2017 38
Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield
Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie – South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return
Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return
Volatility index definition*
This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only
Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions – For quarter ending 30 June 2017
AU/NZ Asia RSA USA CA EUR Outperform 52.01% 55.36% 42.05% 46.38% 66.67% 43.60% (for global coverage by Macquarie, 2.98% of stocks followed are investment banking clients)
Neutral 37.73% 29.86% 42.05% 47.88% 27.91% 40.14% (for global coverage by Macquarie, 2.33% of stocks followed are investment banking clients)
Underperform 10.26% 14.78% 15.91% 5.74% 5.43% 16.26% (for global coverage by Macquarie, 1.15% of stocks followed are investment banking clients)
Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.
Date Stock Code (BBG code) Recommendation Target Price 10-May-2016 RIL IN Outperform Rs1275.00 25-Apr-2016 RIL IN Outperform Rs1280.00 08-Jan-2016 RIL IN Outperform Rs1175.00 19-Oct-2015 RIL IN Outperform Rs1150.00 09-Sep-2015 RIL IN Outperform Rs1110.00 20-Apr-2015 RIL IN Outperform Rs1140.00 15-Apr-2015 RIL IN Outperform Rs1060.00 19-Jan-2015 RIL IN Outperform Rs1075.00
Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Ltd total revenues, a portion of which are generated by Macquarie Group’s Investment Banking activities. General disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Limited and Macquarie Capital Limited, Taiwan Securities Branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie Equities South Africa (Pty) Ltd; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. MGL has established and implemented a conflicts policy at group level (which may be revised and updated from time to time) (the "Conflicts Policy") pursuant to regulatory requirements (including the FCA Rules) which sets out how we must seek to identify and manage all material conflicts of interest. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, we did not take into account your investment objectives, financial situation or particular needs. Macquarie salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions which are contrary to the opinions expressed in this research. Macquarie Research produces a variety of research products including, but not limited to, fundamental analysis, macro-economic analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. The date and
Macquarie Research Reliance Industries
25 July 2017 39
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Asia Research Head of Equity Research
Peter Redhead (Global – Head) (852) 3922 4836
Jake Lynch (Asia – Head) (852) 3922 3583
David Gibson (Japan – Head) (813) 3512 7880
Conrad Werner (ASEAN – Head) (65) 6601 0182
Automobiles/Auto Parts
Janet Lewis (China, Japan) (813) 3512 7856
James Hong (Korea) (822) 3705 8661
Amit Mishra (India) (9122) 6720 4084
Financials
Scott Russell (Asia) (852) 3922 3567
Dexter Hsu (China, Taiwan) (8862) 2734 7530
Keisuke Moriyama (Japan) (813) 3512 7476
Chan Hwang (Korea) (822) 3705 8643
Suresh Ganapathy (India) (9122) 6720 4078
Sameer Bhise (India) (9122) 6720 4099
Gilbert Lopez (Philippines) (632) 857 0892
Ken Ang (Singapore) (65) 6601 0836
Passakorn Linmaneechote (Thailand) (662) 694 7728
Conglomerates
David Ng (China, Hong Kong) (852) 3922 1291
Conrad Werner (Singapore) (65) 6601 0182
Gilbert Lopez (Philippines) (632) 857 0892
Consumer and Gaming
Linda Huang (Asia, China, Hong Kong) (852) 3922 4068
Zibo Chen (China, Hong Kong) (852) 3922 1130
Terence Chang (China, Hong Kong) (852) 3922 3581
Sunny Chow (China, Hong Kong) (852) 3922 3768
Satsuki Kawasaki (Japan) (813) 3512 7870
Kwang Cho (Korea) (822) 3705 4953
KJ Lee (Korea) (822) 3705 9935
Stella Li (China, Taiwan) (8862) 2734 7514
Amit Sinha (India) (9122) 6720 4085
Karisa Magpayo (Philippines) (632) 857 0899
Chalinee Congmuang (Thailand) (662) 694 7993
Emerging Leaders
Jake Lynch (Asia) (852) 3922 3583
Aditya Suresh (Asia) (852) 3922 1265
Timothy Lam (China, Hong Kong) (852) 3922 1086
Kwang Cho (Korea) (822) 3705 4953
Corinne Jian (Taiwan) (8862) 2734 7522
Conrad Werner (ASEAN) (65) 6601 0182
Industrials
Janet Lewis (Asia) (813) 3512 7856
Patrick Dai (China) (8621) 2412 9082
Kunio Sakaida (Japan) (813) 3512 7873
William Montgomery (Japan) (813) 3512 7864
James Hong (Korea) (822) 3705 8661
Benson Pan (Taiwan) (8862) 2734 7527
Inderjeetsingh Bhatia (India) (9122) 6720 4087
Internet, Media and Software
Wendy Huang (Asia, Greater China) (852) 3922 3378
David Gibson (Asia, Japan) (813) 3512 7880
Soyun Shin (Korea) (822) 3705 8659
Abhishek Bhandari (India) (9122) 6720 4088
Marcus Yang (Greater China) (8862) 2734 7532
Ivy Luo (Greater China) (852) 3922 1507
Oil, Gas and Petrochemicals
Polina Diyachkina (Asia, Japan) (813) 3512 7886
Aditya Suresh (Asia, China, India) (852) 3922 1265
Yasuhiro Nakada (Japan) (813) 3512 7862
Anna Park (Korea) (822) 3705 8669
Isaac Chow (Malaysia) (603) 2059 8982
Pharmaceuticals and Healthcare
Wei Li (China, Hong Kong) (852) 3922 5494
Property
Tuck Yin Soong (Asia, Singapore) (65) 6601 0838
David Ng (China, Hong Kong) (852) 3922 1291
Wilson Ho (China) (852) 3922 3248
William Montgomery (Japan) (813) 3512 7864
Corinne Jian (Taiwan) (8862) 2734 7522
Abhishek Bhandari (India) (9122) 6720 4088
Aiman Mohamad (Malaysia) (603) 2059 8986
Kervin Sisayan (Philippines) (632) 857 0893
Patti Tomaitrichitr (Thailand) (662) 694 7727
Resources / Metals and Mining
Polina Diyachkina (Asia, Japan) (813) 3512 7886
Coria Chow (China) (852) 3922 1181
Anna Park (Korea) (822) 3705 8669
Sumangal Nevatia (India) (9122) 6720 4093
Technology
Damian Thong (Asia, Japan) (813) 3512 7877
Yasuhiro Nakada (Japan) (813) 3512 7862
Daniel Kim (Korea) (822) 3705 8641
Allen Chang (Greater China) (852) 3922 1136
Jeffrey Ohlweiler (Greater China) (8862) 2734 7512
Patrick Liao (Greater China) (8862) 2734 7515
Louis Cheng (Greater China) (8862) 2734 7526
Kaylin Tsai (Greater China) (8862) 2734 7523
Verena Jeng (Greater China) (852) 3922 3766
Chris Yu (Greater China) (8621) 2412 9024
Lynn Luo (Greater China) (8862) 2734 7534
Telecoms
Allen Chang (Greater China) (852) 3922 1136
Soyun Shin (Korea) (822) 3705 8659
Prem Jearajasingam (ASEAN) (603) 2059 8989
Kervin Sisayan (Philippines) (632) 857 0893
Nathania Nurhalim (Indonesia) (6221) 2598 8365
Transport & Infrastructure
Janet Lewis (Asia) (852) 3922 5417
Corinne Jian (Taiwan) (8862) 2734 7522
Azita Nazrene (ASEAN) (603) 2059 8980
Utilities & Renewables
Patrick Dai (China) (8621) 2412 9082
Alan Hon (Hong Kong) (852) 3922 3589
Inderjeetsingh Bhatia (India) (9122) 6720 4087
Prem Jearajasingam (Malaysia) (603) 2059 8989
Karisa Magpayo (Philippines) (632) 857 0899
Commodities
Ian Roper (65) 6601 0698
Jim Lennon (44 20) 3037 4271
Lynn Zhao (8621) 2412 9035
Matthew Turner (44 20) 3037 4340
Economics
Peter Eadon-Clarke (Global) (813) 3512 7850
Larry Hu (China, Hong Kong) (852) 3922 3778
Quantitative / CPG
Gurvinder Brar (Global) (44 20) 3037 4036
Woei Chan (Asia) (852) 3922 1421
Strategy/Country
Viktor Shvets (Asia, Global) (852) 3922 3883
Chetan Seth (Asia) (852) 3922 4769
David Ng (China, Hong Kong) (852) 3922 1291
Peter Eadon-Clarke (Japan) (813) 3512 7850
Chan Hwang (Korea) (822) 3705 8643
Jeffrey Ohlweiler (Taiwan) (8862) 2734 7512
Inderjeetsingh Bhatia (India) (9122) 6720 4087
Jayden Vantarakis (Indonesia) (6221) 2598 8310
Anand Pathmakanthan (Malaysia) (603) 2059 8833
Gilbert Lopez (Philippines) (632) 857 0892
Conrad Werner (Singapore) (65) 6601 0182
Passakorn Linmaneechote (Thailand) (662) 694 7728
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Jeff Evans (Boston) (1 617) 598 2508
Jeffrey Shiu (China, Hong Kong) (852) 3922 2061
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Thomas Renz (Geneva) (41 22) 818 7712
Riaz Hyder (Indonesia) (6221) 2598 8486
Nick Cant (Japan) (65) 6601 0210
John Jay Lee (Korea) (822) 3705 9988
Nik Hadi (Malaysia) (603) 2059 8888
Gino C Rojas (Philippines) (632) 857 0861
Regional Heads of Sales cont’d
Paul Colaco (San Francisco) (1 415) 762 5003
Amelia Mehta (Singapore) (65) 6601 0211
Angus Kent (Thailand) (662) 694 7601
Ben Musgrave (UK/Europe) (44 20) 3037 4882
Christina Lee (UK/Europe) (44 20) 3037 4873
Sales Trading
Adam Zaki (Asia) (852) 3922 2002
Stanley Dunda (Indonesia) (6221) 515 1555
Sales Trading cont’d
Suhaida Samsudin (Malaysia) (603) 2059 8888
Michael Santos (Philippines) (632) 857 0813
Chris Reale (New York) (1 212) 231 2555
Marc Rosa (New York) (1 212) 231 2555
Justin Morrison (Singapore) (65) 6601 0288
Daniel Clarke (Taiwan) (8862) 2734 7580
Brendan Rake (Thailand) (662) 694 7707
Mike Keen (UK/Europe) (44 20) 3037 4905
This publication was disseminated on 24 July 2017 at 17:11 UTC.
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