德银-印度-石油与天然气行业（个股-信实工业）-新产能交付-20180120-17页_1mb

Reliance Industries Summary

Core Content

Reliance Industries (RIL) is India's largest private sector enterprise, with a diverse business portfolio spanning energy and materials value chains, including exploration and production (E&P), refining, petrochemicals, telecom, and retail. The company reported strong 3QFY18 results, driven by robust performance in its petchem business and telecom segment (RJIO).

Main Points

• Petchem Performance: Petchem EBIT rose 69% YoY to INR56.6bn, attributed to strong margins and increased production from expanded capacities. EBITDA from the petchem segment was INR137.4bn, reflecting better-than-expected performance.
• Telecom Segment (RJIO): RJIO reported EBITDA of INR26.3bn, already 38% of petrochemicals EBITDA, and net profit of INR5bn. The company is expected to see further revenue growth and monetization over the next six months.
• Refining Segment: Refining EBIT declined 1% YoY to INR60.8bn due to lower throughput and rupee appreciation. The refinery off-gas cracker (ROGC) and MEG plant reached full capacity in Jan 2018, with further capacity expansion expected to boost refining margins.
• Retail Business: The retail segment showed strong growth, with revenue of INR188bn (+116% YoY, +28% QoQ) and EBITDA of INR6bn (+82% YoY, +36% QoQ).
• Financial Performance: Consolidated EBITDA for 3QFY18 was INR175.9bn (+52% YoY, +13% QoQ), and net profit was INR94.2bn (+25% YoY, +16% QoQ).
• Valuation: The stock is trading at a 10% discount to its past 10-year average valuation. The company's equity stake in the telecom venture is not factored into the valuation, but the estimated NPV of INR206/share is considered.
• Future Outlook: RIL's EBITDA is expected to grow at a 41% CAGR over FY17-19E due to the commissioning of core sector projects and the ramp-up of monetisation at RJIO.
• Debt and Liquidity: Net debt stood at USD21.1bn, with a net interest cover of 6.7x. The company has a significant investment in upstream and downstream segments.
• Segment Performance:
  • Refining: Throughput declined slightly, but petchem production increased significantly due to new capacities.
  • Oil & Gas: Gas production from KGD6 fell 35% YoY, while US shale production declined 14% YoY.
• Risks: Key risks include changes in the regulatory environment, downturn in global commodity prices, and potential lower revenue growth for the telecom business.
• Peer Valuation: Compared to international peers, RIL's valuation metrics are competitive, with a target price of INR1,150, indicating a Buy rating.

Key Financial Highlights

Key Projects and Capacity Expansion

• Refinery Off-Gas Cracker (ROGC): Commissioned in Jan 2018, contributing to higher petchem EBITDA.
• MEG Plant: Commissioned and operating at full capacity.
• Petcoke Gasifier: Four initial modules started in 4QFY18, with the rest expected by 1QFY19.
• Upstream Projects: KGD6 and US shale gas projects are in advanced stages of bid evaluation and negotiations.

Valuation Methodology

• SOTP Valuation:
  • Refining & Petrochemicals: EV/EBITDA of 7.5x FY19E
  • Retail: EV/sales
  • E&P & Telecom: DCF with WACC of 10.4%
• WACC: Based on Deutsche Bank's assumptions with a risk-free rate of 7.0% and risk premium of 7.1%, beta of 0.9.
• Enterprise Value: INR8,693,049m (FY18E), INR8,441,454m (FY19E), INR8,065,115m (FY20E).

Market Performance

• Price (18 Jan 2018): INR921.00
• Target Price (12mth): INR1,150.00
• 52-Week Range: INR504.28 - 953.05
• Market Cap (INRm): INR5,968,773 (FY18E)
• Stock Performance: Outperformed the BSE 30 index over the past 12 months.

Risks and Outlook

• Risks: Regulatory changes, global commodity price volatility, and lower telecom revenue growth.
• Outlook: Continued expansion and monetization of petchem and telecom segments are expected to drive EBITDA growth and maintain the company's outperformance.