Reliance Industries

Rs1,236.05 - BUY

Vikash Kumar Jain A big deal

vikash.jain@clsa.com Facebook to buy 9.99% in Jio for Rs436bn; leverage concerns to diminish
+91 22 6650 5015
Facebook has signed a binding agreement to infuse Rs436bn in Jio Platform which
Surajdev Yadav, CFA will give it a 9.99% stake. The implied valuation is slightly below our valuation of Jio
+91 22 6650 5071 but this should help in positioning Jio as a technology company rather than just a
telco. This and the BP deal should bring down net debt by ~20% and net debt/Ebitda
becoming more comfortable at 2.1/1.3x as of Mar’21/22. An agreement has also been
signed with Whatsapp to provide a boost to the upcoming O2O extension of Reliance
Retail. Effective monetisation of the large reach of Facebook, Whatsapp and Jio in
India along with diminishing concerns on leverage are positives. BUY.
22 April 2020
Facebook to invest US$5.7bn in Jio Platforms for a 9.99% stake
India Facebook has signed a binding agreement to acquire a 9.99% stake in Jio Platform Ltd for
Rs435.74bn (US$5.7bn at current INR/US$). This implies an equity value of Rs4,358bn
Petro/Chems or US$57bn for Jio Platform Ltd. Part of this receipt of Rs436bn from Facebook will be
Reuters RELI.BO used to buyback RIL’s optionally convertible preference shares (OCPS) while the
Bloomberg RIL IB remaining will stay as cash in the books of Jio Platform. Since this is an equity infusion ie,
Priced on 21 April 2020 fresh issue of equity shares by Jio Platform Ltd to Facebook, there is unlikely to be any
CNX Nifty @ 8,981.5 tax incidence and the approval process for closure should also be rather quick.
12M hi/lo Rs1,605.15/883.85 Deal value close to our valuation of Jio
12M price target Rs1,500.00 While this partnership will allow help in effectively tapping Jio’s reach of nearly
±% potential +21% one-third of India’s population and grow this business, this valuation is ~4% below
Shares in issue 6,339.2m our EV of Jio’s business despite the fact that this would also include some digital
Free float (est.) 51.1% properties of Jio. Most importantly, this may help in repositioning Jio as a
Market cap US$101.8bn technology major rather than a telco. We calculate that this implies 9x of our
3M ADV US$304.8m estimated FY22 Ebitda of Jio. One may recall that this newly formed Jio Platform
(Declaration of Intent) houses all of Reliance's digital businesses viz the telecom
Foreign s'holding 26.9%
service business of Jio (mobile and broadband), Jio's suite of apps, digital
Major shareholders
investments (KAI-OS, Haptik etc) and tech capabilities like big data, AI, IoT etc.
Ambani Family 42.4%
Treasury Stock 6.5% This partnership will also provide a boost to Reliance Retail
A commercial partnership has also been signed with Facebook-owned Whatsapp,
which will further accelerate JioMart - the upcoming O2O offering of Reliance
Retail whereby Whatsapp will be used to provide solution to mom-and-pop
Blended ESG Score (%)*
Overall 53.8
partners, small merchants and also raise convenience and reach of consumers.
Country average 64.0
Retain BUY; the leverage is getting quite manageable
GEM sector average 65.2
*Click to visit company page on clsa.com for details This along with the closure of a Rs70bn stake sale to BP in the oil marketing JV should
imply cash infusion of over Rs500bn and bring down net debt by ~20% possibly by the
Stock performance (%)
end of this ongoing quarter. Building these inflows will pull down net debt/Ebitda from
1M 3M 12M
2.7x in Mar’20 to comfortable levels of 2.1x/1.3x in Mar’21/Mar’22. The progress in stake
Absolute 21.2 (19.4) (10.6)
Relative 18.0 9.2 17.0
sale in tower and fibre InvIT as well as to Aramco may be the other triggers. BUY.
Abs (US$) 18.7 (25.5) (19.4) Financials
Year to 31 March 18A 19A 20CL 21CL 22CL
Ebitda (Rsm) 640,050 839,180 855,679 898,317 1,192,914
Net profit (Rsm) 347,950 393,430 433,738 440,536 608,906
EPS (RS) 54.2 62.1 68.4 69.5 96.1
CL/consensus (29) (EPS%) - - 94 85 90
EPS growth (% YoY) 18.0 14.5 10.2 1.6 38.2
ROE (%) 12.5 11.6 10.7 10.0 12.5
PB (x) 2.7 2.0 1.9 1.7 1.5
PE (x) 22.8 19.9 18.1 17.8 12.9
EV/Ebitda (x) 14.8 11.6 11.3 11.3 8.2
Source: Bloomberg Source: www.clsa.com

CLSA and CL Securities Taiwan Co., Ltd. (“CLST”) do and seek to do business with companies covered in its research reports. As such,
investors should be aware that there may be conflicts of interest which could affect the objectivity of the report. Investors should consider
this report as only a single factor in making their investment decisions. For important disclosures please refer to page 14.
 A big deal Reliance Industries - BUY

Financials at a glance
Year to 31 March 2018A 2019A 2020CL (% YoY) 2021CL 2022CL

Profit & Loss (Rsm)

Revenue 3,914,790 5,671,350 5,686,963 0.3 4,721,939 6,416,259
Cogs (ex-D&A) (2,674,660) (3,944,870) (4,059,771) (2,916,374) (4,125,001)
Gross Profit (ex-D&A) 1,240,130 1,726,480 1,627,192 (5.8) 1,805,565 2,291,258
SG&A and other expenses (600,080) (887,300) (771,513) (907,247) (1,098,344)
Op Ebitda 640,050 839,180 855,679 2 898,317 1,192,914
Depreciation/amortisation (167,060) (209,340) (207,003) (228,276) (294,285)
Op Ebit 472,990 629,840 648,676 3 670,042 898,629
Net interest inc/(exp) (72,970) (153,880) (203,035) (222,470) (210,873)
Other non-Op items 80,800 70,340 118,726 68.8 130,154 120,124
Profit before tax 480,820 546,300 564,368 3.3 577,726 807,880
Taxation (133,460) (153,900) (130,630) (137,189) (198,974)
Profit after tax 347,360 392,400 433,738 10.5 440,536 608,906
Minority interest 590 1,030 0 0 0
Net profit 347,950 393,430 433,738 10.2 440,536 608,906
Adjusted profit 347,950 393,430 433,738 10.2 440,536 608,906
Cashflow (Rsm) 2018A 2019A 2020CL (% YoY) 2021CL 2022CL
Operating profit 472,990 629,840 648,676 3 670,042 898,629
Depreciation/amortisation 167,060 209,340 207,003 (1.1) 228,276 294,285
Working capital changes 171,178 (1,661,390) 155,767 (544,750) (53,965)
Other items (100,010) 52,140 (80,707) (94,248) (134,127)
Net operating cashflow 711,218 (770,070) 930,739 259,320 1,004,822
Capital expenditure (821,760) 43,180 (736,080) (536,979) (491,189)
Free cashflow (110,542) (726,890) 194,659 (277,659) 513,633
M&A/Others 14,600 (72,470) (61,309) (92,316) (90,749)
Net investing cashflow (807,160) (29,290) (797,388) (629,295) (581,938)
Increase in loans 223,662 744,230 (37,157) 296,814 (295,181)
Dividends (39,160) (46,222) (48,000) (49,777) (51,555)
Net equity raised/other (24,750) 635,442 (23,220) (21,983) (22,450)
Net financing cashflow 159,752 1,333,450 (108,377) 225,054 (369,186)
Incr/(decr) in net cash 63,810 534,090 24,974 (95.3) (144,921) 53,698
Exch rate movements (7,820) (11,070) (23,000) 0 0
Balance sheet (Rsm) 2018A 2019A 2020CL (% YoY) 2021CL 2022CL
Cash & equivalents 807,250 1,330,270 1,332,244 0.1 1,187,323 1,241,021
Accounts receivable 175,550 300,890 208,691 (30.6) 188,336 317,871
Other current assets 1,156,940 2,670,580 2,693,349 0.9 2,496,742 2,588,102
Fixed assets 5,909,070 5,658,400 6,187,476 9.4 6,496,180 6,693,084
Investments 63,920 63,920 63,920 0 63,920 63,920
Intangible assets 0 0 0 0 0
Other non-current assets 0 0 0 0 0
Total assets 8,112,730 10,024,060 10,485,682 4.6 10,432,501 10,903,997
Short-term debt - - - - -
Accounts payable 2,457,040 2,434,190 2,520,528 3.5 1,758,783 1,925,712
Other current liabs 41,380 41,820 41,820 0 41,820 41,820
Long-term debt/CBs 2,398,430 3,142,660 3,105,503 (1.2) 3,402,317 3,107,136
Provisions/other LT liabs 245,430 451,470 501,393 11.1 544,334 609,182
Shareholder funds 2,935,060 3,871,120 4,233,638 9.4 4,602,447 5,137,348
Minorities/other equity 35,390 82,800 82,800 0 82,800 82,800
Total liabs & equity 8,112,730 10,024,060 10,485,682 4.6 10,432,501 10,903,997
Ratio analysis 2018A 2019A 2020CL (% YoY) 2021CL 2022CL
Revenue growth (% YoY) 28.2 44.9 0.3 (17.0) 35.9
Ebitda margin (%) 16.3 14.8 15.0 19.0 18.6
Ebit margin (%) 12.1 11.1 11.4 14.2 14.0
Net profit growth (%) 16.6 13.1 10.2 1.6 38.2
Op cashflow growth (% YoY) (8.8) (208.3) nm (72.1) 287.5
Capex/sales (%) 21.0 0.8 12.9 11.4 7.7
Net debt/equity (%) 53.6 45.8 41.1 47.3 35.7
Net debt/Ebitda (x) 2.5 2.2 2.1 2.5 1.6
ROE (%) 12.5 11.6 10.7 10.0 12.5
ROIC (%) 7.6 8.3 7.9 7.3 9.0
Source: www.clsa.com

Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com

22 April 2020 vikash.jain@clsa.com 2

 A big deal Reliance Industries - BUY

We would like to thank Evalueserve for its help in preparing our research reports. Bhavik Mehta (IT); Kushal Shah (Midcaps); Shreya Shivani (BFSI) and Akshay
Chandak (Strategy) provide research support services to CLSA.

Facebook to invest US$5.7bn in Jio Platforms for a 9.99% stake

Figure 1

Facebook has signed a Details of investment

binding agreement to
acquire 9.99% stake in Jio
Platform for Rs435.74bn
(US$5.7bn at current
INR/US$) and this implies
an equity value of
Rs4,358bn or US$57bn for
the entity
Source: Company

Figure 2

Valuation is ~4% below our Structure of investment

EV of Jio’s business despite
the fact that it would also
include some digital
properties of Jio

Source: Company, CLSA

Figure 3

The partnership will allow Focus areas of the partnership

help in effectively tapping
Jio’s reach of nearly one-
third of India’s population
and will also focus on
MSME

Source: Company

Figure 4

A commercial partnership Partnership also on Jio Mart

has also been signed with
Facebook owned Whatsapp
which will further
accelerate JioMart-the
upcoming O2O offering of
Reliance Retail

Source: Company

22 April 2020 vikash.jain@clsa.com 3

 A big deal Reliance Industries - BUY

Leverage is getting quite manageable and concerns around this should diminish
Figure 5

Cash infusion from this deal Build-up of consolidated net debt and other liabilities of Reliance
with Facebook and the
closure of Rs70bn stake
sale to BP in the oil
marketing JV should imply
cash infusion of over
Rs500bn and bring down
net debt by ~20% possibly
by end of this ongoing
quarter

Source: Company, CLSA

Figure 6

Our current estimates bake Consolidated net debt (including other liabilities) to Ebitda
in a decline in net
debt/Ebitda to from 2.7x in
FY20CL to 1.7x in FY22CL…

…cash inflow from the

Facebook and RIL-BP deal
would bring down net debt
to Ebitda to 2.1x in FY21CL
and 1.3x in FY22CL

Source: Company, CLSA

22 April 2020 vikash.jain@clsa.com 4

 A big deal Reliance Industries - BUY

Maintain BUY and price target of Rs1,500

Figure 7

Sum-of-the-parts valuation of Reliance Industries

Mar20 fair value US$bn Rs/sh Comments

India oil & gas Business

Petrochem 24.3 310 At 7x Mar22 EV/Ebitda
Core Refining 19.6 250 At 6x Mar22 EV/Ebitda; implies US$1293/complex-bpd
India upstream 2.9 37 Based on DCF using 10% US$ WACC
Standalone business EV 46.7 597 Implies 6.8x Mar22 standalone EV/Ebitda

Standalone Net Cash (Debt) (12.8) (164) Mar 21 end estimated net cash (debt)

Standalone business Equity value 33.9 433 Implies 9.8x Mar21 standalone PE

Equity value of subs and investments 82.3 1,051 Value of US shale business, telecom and organised retail

US shale equity value (4.0) (51) Valuation implies 0.1x EV/invested capital
US Shale business DCF value 0.5 6 Using DCF with 10% US$ WACC
US Shale net (debt)/cash (4.4) (57) Estimated net debt at the subsidiary level

Reliance Jio (4G telecom) 55.0 702 Value of mobile as well as broadband business
Jio mobile business EV 59.7 763 Valued at 9x Ev/Ebitda
Jio fixed line business EV 5.0 64 Estimated US$5bn value of Broadband business by Mar'21
Reliance Jio debt (9.8) (125) Estimated net debt at the subsidiary level

Reliance Retail (94.4% stake) 31.2 399 Valued at 18x Ev/Ebitda, & implies 20.7x Ev/Ebit
Organised retail EV 34.5 441 Valued at 18x Ev/Ebitda
Organised retail debt (1.5) (19) Estimated Net debt at the subsidiary level

Value of other subs and investments 0.1 1

0.8 11 Listed investments at current market price in Network 18, TV18,
Value of listed subs and investments
Hathway, Den, Balaji, EIH etc.
Net cash (debt) held in other subsidiaries (0.7) (9.6) Estimated Net cash (debt) at the subsidiary level

CLSA Fair Equity Value 116.6 1,484 Fair equity value, implies 14.5x Mar22 PE; 9.3x Mar22 Ev/EBITDA
Source: CLSA. Note: target price rounded up to Rs1,500.

22 April 2020 vikash.jain@clsa.com 5

 A big deal Reliance Industries - BUY

Key assumptions
Figure 8

Key assumptions
FY16 FY17 FY18 FY19 20CL 21CL 22CL
Macro Assumptions
Brent ($/bbl) 47.6 49.0 57.7 70.2 60.9 32.3 41.3
Average Exchange rate (Rs/$) 65.4 67.0 64.5 69.9 70.0 76.0 76.0
Year End Exchange rate (Rs/$) 66.2 64.9 65.2 69.2 75.6 76.0 76.0

Refining Assumptions
Refining crude thruput (mt) 69.6 70.1 69.8 68.3 70.0 65.0 70.0
Core GRM 10.8 11.0 10.6 8.7 8.7 8.0 9.0
Benefit from petcoke gasification - - - - - - -
Reliance GRM ($/bbl) 10.8 11.0 10.6 8.7 8.7 8.0 9.0

Petchem Assumptions
Petchem production (mt) 13.8 15.8 18.7 19.9 19.9 17.1 19.9
Core petchem blended margin (US$/t) 362.7 374.1 415.4 397.9 310.0 326.7 317.6
Integration gains (US$/t) - - - 69.2 50.1 16.8 26.0
Total petchem blended margin (US$/t) 362.7 374.1 415.4 467.1 360.1 343.6 343.6

Upstream assumptions
Oil Production (kbpd) 24.1 20.1 17.0 12.0 6.6 0.0 0.0
Gas Production (mmscmd) 16.4 12.7 10.1 6.8 4.2 3.2 21.9
Gas price assumed for new KG volumes ($/mmbtu) 4.7 3.1 3.0 3.6 4.0 4.0 4.1

Telecom assumptions
End of period subscribers (mn) - 109 186.6 306.7 386.0 440.8 485.8
Arpu (Rs/month) - 251 151.7 131.2 121.9 152.5 168.0

Organised retail assumptions

Revenue growth (%) 19.5 60.2 104.9 88.7 31.0 10.8 41.1
Ebitda margin (%) 4.1 3.5 3.7 4.7 5.7 4.0 5.4

US Shale gas assumptions

US shale production (bcfe) 194.2 175.4 152.2 92.2 66.1 111.5 151.9
WTI (US$/bbl) 44.9 47.8 53.7 62.8 54.7 27.8 38.3
US Henry Hub gas price ($/mmbtu) 2.4 2.7 3.0 3.1 2.7 2.8 3.0
Source: Company, CLSA

22 April 2020 vikash.jain@clsa.com 6

 A big deal Reliance Industries - BUY

Income statement summary of Reliance Jio

Figure 9

Summary income statement of Reliance Jio

Key assumptions FY18 FY19 FY20CL FY21CL FY22CL
End of period subscribers (million) 187 307 386 441 486
Average subscribers (million) 148 247 346 413 463
Arpu (Rs/month) 151.7 131.2 121.9 152.5 168.0

Income statement (Rsmn)

Revenues 201,540 388,380 506,611 756,331 934,159

License fees (12,910) (27,461) (39,034) (60,106) (74,333)

Spectrum usage charge (4,760) (14,129) (18,541) (28,551) (35,308)
Inter-connect charge (42,870) (42,070) (18,690) (5,000) (5,000)
Subscriber acquisition costs (7,088) (7,580) (10,244) (10,807) (11,321)
Total variable costs (67,628) (91,240) (86,509) (104,464) (125,962)

Tower rental (17,300) (42,710) (178,287) (192,428) (182,738)

Fuel costs (22,540) (50,830) (57,465) (66,510) (77,444)
Other network operating costs (9,370) (19,840) (29,750) (29,750) (37,767)
Semi variable costs (49,210) (113,380) (265,502) (288,687) (297,949)

Employee costs (9,630) (16,580) (17,655) (18,730) (19,871)

Admin exp (4,950) (10,220) (10,731) (11,268) (11,831)
Advertisement expenses (2,813) (6,000) (6,180) (6,365) (6,556)
Fixed costs (17,393) (32,800) (34,566) (36,363) (38,258)

Less: Capitalised cost (non-mobile) - - 100,000 65,000 30,000

Total costs (134,230) (237,420) (286,577) (364,514) (432,169)

The recent tariff hike Ebitda 67,310 150,960 220,034 391,817 501,990
should allow Jio’s Ebitda to Ebitda margin (%) 33.4 38.9 43.4 51.8 53.7
rise 78%YoY in FY21CL and
then 28% YoY in FY22CL Depreciation (35,770) (63,980) (72,276) (91,544) (106,546)

Ebit 31,540 86,980 147,758 300,272 395,444

Ebit margin (%) 15.6 22.4 29.2 39.7 42.3

Interest expenses (20,490) (41,480) (77,444) (68,685) (64,057)

Other income 40.0 60.0 882.4 1,936 3,449

PBT 11,090 45,560 71,196 233,522 334,836

Tax (3,860) (15,920) (17,941) (58,848) (84,379)

Tax rate (%) 34.8 34.9 25.2 25.2 25.2

PAT 7,230 29,640 53,255 174,675 250,457

EPS 1.1 4.7 8.4 27.6 39.5
Source: Company, CLSA

22 April 2020 vikash.jain@clsa.com 7

 A big deal Reliance Industries - BUY

Consolidated income statement summary

Figure 10

Summary of consolidated income statement

(Rs bn) FY16 FY17 FY18 FY19 20CL 21CL 22CL
Net Sales 2,740 3,054 3,915 5,671 5,687 4,722 6,416

RM, purchases (1,888) (2,123) (2,675) (3,945) (4,060) (2,916) (4,125)

Netback 852 931 1,240 1,726 1,627 1,806 2,291

Opex (439) (465) (600) (887) (762) (897) (1,088)

A strong telecom business Ebitda 412 465 640 839 856 898 1,193
and a weaker rupee will Refining 282 286 279 230 222 195 247
offset the big cuts in Petchem 133 165 259 376 324 237 273
petchem, refining and retail E&P 43 16 15 14 3 8 36
as Ebitda should see 18% Telecom - - 67 151 220 392 502
Cagr over FY20-22CL
Retail 9 12 25 62 98 77 145
Others (54) (10) (5) 3 (14) (14) (14)

Depreciation (116) (116) (167) (209) (207) (228) (294)

Ebit 297 349 473 630 649 670 899

Interest (26) (32) (73) (154) (203) (222) (211)

Other Income 116 94 89 81 142 130 120

Core PBT 387 412 489 557 587 578 808

Forex (6) (10) (8) (11) (23) - -

Others 4 - 13 5 (2) - -

PBT 385 401 494 551 563 578 808

Taxes (89) (102) (133) (154) (131) (137) (199)

% rate 23.1 25.4 27.0 27.9 23.2 23.7 24.6

PAT 299 298 361 398 432 441 609

Adjustments (4) - (13) (5) 2 - -

Consolidated earnings Recurring PAT 294 298 348 393 434 441 609
should also rise by a similar % YoY 24.9 1.3 16.6 13.1 10.2 1.6 38.2
18% Cagr over FY20-22CL
EPS 45 46 55 62 68 69 96
% YoY 24.8 1.1 19.5 13.0 10.2 1.6 38.2
Source: Company, CLSA

22 April 2020 vikash.jain@clsa.com 8

 A big deal Reliance Industries - BUY

Valuation details
We use an SOTP-based valuation for our target price. We value Reliance’s
downstream businesses - refining and marketing - on global peer average EV/Ebitda
multiples and use DCF for its domestic E&P and US shale businesses. We use
EV/Ebitda multiple for its telecom and retail business. We also add the value of its
listed investments at current market price.

Investment risks
Delays in commissioning key downstream expansion or a slower-than-expected
pace of subscriber additions for telecoms would be negative. A fall in refining and
petchem margins, a lower crude price, a falling US gas price and continued increases
in capex on telecoms remain key risks. Prolonged impact of demand destruction
due to Covid-19 for the refining and petchem value chain could be a downside risk
to our refining/petchem margin assumptions.

22 April 2020 vikash.jain@clsa.com 9

 A big deal Reliance Industries - BUY

Detailed financials
Profit & Loss (Rsm)
Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Revenue 2,739,990 3,053,820 3,914,790 5,671,350 5,686,963 4,721,939 6,416,259
Cogs (ex-D&A) (1,888,140) (2,123,000) (2,674,660) (3,944,870) (4,059,771) (2,916,374) (4,125,001)
Gross Profit (ex-D&A) 851,850 930,820 1,240,130 1,726,480 1,627,192 1,805,565 2,291,258
Research & development costs - - - - - - -
Selling & marketing expenses - - - - - - -
Other SG&A (365,390) (381,600) (504,850) (762,420) (642,886) (774,762) (961,884)
Other Op Expenses ex-D&A (74,070) (83,880) (95,230) (124,880) (128,626) (132,485) (136,460)
Op Ebitda 412,390 465,340 640,050 839,180 855,679 898,317 1,192,914
Depreciation/amortisation (115,650) (116,460) (167,060) (209,340) (207,003) (228,276) (294,285)
Op Ebit 296,740 348,880 472,990 629,840 648,676 670,042 898,629
Interest income 0 0 0 0 0 0 0
Interest expense (26,120) (31,580) (72,970) (153,880) (203,035) (222,470) (210,873)
Net interest inc/(exp) (26,120) (31,580) (72,970) (153,880) (203,035) (222,470) (210,873)
Associates/investments 116,300 94,430 88,620 81,410 141,726 130,154 120,124
Forex/other income (6,140) (10,310) (7,820) (11,070) (23,000) - -
Asset sales/other cash items 0 - - - - - -
Provisions/other non-cash items - - - - - - -
Asset revaluation/Exceptional items 4,230 - - - - - -
Profit before tax 385,010 401,420 480,820 546,300 564,368 577,726 807,880
Taxation (88,760) (102,010) (133,460) (153,900) (130,630) (137,189) (198,974)
Profit after tax 296,250 299,410 347,360 392,400 433,738 440,536 608,906
Preference dividends - - - - - - -
Profit for period 296,250 299,410 347,360 392,400 433,738 440,536 608,906
Minority interest 2,360 (1,080) 590 1,030 0 0 0
Net profit 298,610 298,330 347,950 393,430 433,738 440,536 608,906
Extraordinaries/others (4,230) 0 (12,850) (4,940) 1,770 0 0
Profit avail to ordinary shares 294,380 298,330 335,100 388,490 435,508 440,536 608,906
Dividends (37,000) (39,054) (39,160) (46,222) (48,000) (49,777) (51,555)
Retained profit 257,380 259,276 295,940 342,268 387,508 390,759 557,351
Adjusted profit 295,861 298,330 347,950 393,430 433,738 440,536 608,906
EPS (RS) 46.1 46.0 54.2 62.1 68.4 69.5 96.1
Adj EPS [pre excep] (RS) 45.7 46.0 54.2 62.1 68.4 69.5 96.1
Core EPS (RS) 45.7 46.0 54.2 62.1 68.4 69.5 96.1
DPS (RS) 4.8 5.0 5.5 6.5 6.8 7.0 7.3

Profit & loss ratios

Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Growth (%)
Revenue growth (% YoY) (27.0) 11.5 28.2 44.9 0.3 (17.0) 35.9
Ebitda growth (% YoY) 9.7 12.8 37.5 31.1 2.0 5.0 32.8
Ebit growth (% YoY) 13.9 17.6 35.6 33.2 3.0 3.3 34.1
Net profit growth (%) 26.7 (0.1) 16.6 13.1 10.2 1.6 38.2
EPS growth (% YoY) 26.6 (0.3) 18.0 14.5 10.2 1.6 38.2
Adj EPS growth (% YoY) 25.4 0.6 18.0 14.5 10.2 1.6 38.2
DPS growth (% YoY) 5.0 4.8 9.8 18.3 3.8 3.7 3.6
Core EPS growth (% YoY) 25.4 0.6 18.0 14.5 10.2 1.6 38.2
Margins (%)
Ebitda margin (%) 15.1 15.2 16.3 14.8 15.0 19.0 18.6
Ebit margin (%) 10.8 11.4 12.1 11.1 11.4 14.2 14.0
Net profit margin (%) 10.9 9.8 8.9 6.9 7.6 9.3 9.5
Core profit margin 10.8 9.8 8.9 6.9 7.6 9.3 9.5
Op cashflow margin 33.4 25.5 18.2 (13.6) 16.4 5.5 15.7
Returns (%)
ROE (%) 13.3 12.0 12.5 11.6 10.7 10.0 12.5
ROA (%) 4.1 4.0 4.5 5.0 4.9 4.9 6.3
ROIC (%) 6.9 6.7 7.6 8.3 7.9 7.3 9.0
ROCE (%) 9.2 9.3 10.9 12.2 10.9 10.3 12.8
Other key ratios (%)
Effective tax rate (%) 23.1 25.4 27.8 28.2 23.1 23.7 24.6
Ebitda/net int exp (x) 15.8 14.7 8.8 5.5 4.2 4.0 5.7
Exceptional or extraord. inc/PBT (%) 1.1 0.0 0.0 0.0 0.0 0.0 0.0
Dividend payout (%) 10.4 10.9 10.1 10.5 9.9 10.1 7.5
Source: www.clsa.com

22 April 2020 vikash.jain@clsa.com 10

 A big deal Reliance Industries - BUY

Balance sheet (Rsm)

Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Cash & equivalents 884,370 751,260 807,250 1,330,270 1,332,244 1,187,323 1,241,021
Accounts receivable 44,650 81,770 175,550 300,890 208,691 188,336 317,871
Inventories 464,860 534,600 608,370 675,610 698,370 501,731 593,090
Other current assets 393,960 403,890 548,570 1,994,970 1,994,979 1,995,012 1,995,012
Current assets 1,787,840 1,771,520 2,139,740 4,301,740 4,234,285 3,872,402 4,146,993
Fixed assets 4,136,070 5,233,630 5,909,070 5,658,400 6,187,476 6,496,180 6,693,084
Investments 66,060 62,870 63,920 63,920 63,920 63,920 63,920
Goodwill 0 0 0 0 0 0 0
Other intangible assets 0 0 0 0 0 0 0
Other non-current assets 0 0 0 0 0 0 0
Total assets 5,989,970 7,068,020 8,112,730 10,024,060 10,485,682 10,432,501 10,903,997
Short term loans/OD - - - - - - -
Accounts payable 1,458,712 1,973,792 2,457,040 2,434,190 2,520,528 1,758,783 1,925,712
Accrued expenses - - - - - - -
Taxes payable 0 0 0 0 0 0 0
Other current liabs 30,060 41,220 41,380 41,820 41,820 41,820 41,820
Current liabilities 1,488,772 2,015,012 2,498,420 2,476,010 2,562,348 1,800,603 1,967,532
Long-term debt/leases/other 1,947,138 2,174,768 2,398,430 3,142,660 3,105,503 3,402,317 3,107,136
Convertible bonds - - - - - - -
Provisions/other LT liabs 204,940 211,980 245,430 451,470 501,393 544,334 609,182
Total liabilities 3,640,850 4,401,760 5,142,280 6,070,140 6,169,244 5,747,254 5,683,850
Share capital 32,400 32,510 63,350 63,387 63,387 63,387 63,387
Retained earnings 2,283,160 2,604,580 2,871,710 3,807,733 4,191,701 4,582,460 5,139,811
Reserves/others 0 0 0 0 (21,450) (43,400) (65,850)
Shareholder funds 2,315,560 2,637,090 2,935,060 3,871,120 4,233,638 4,602,447 5,137,348
Minorities/other equity 33,560 29,170 35,390 82,800 82,800 82,800 82,800
Total equity 2,349,120 2,666,260 2,970,450 3,953,920 4,316,438 4,685,247 5,220,148
Total liabs & equity 5,989,970 7,068,020 8,112,730 10,024,060 10,485,682 10,432,501 10,903,997
Total debt 1,947,138 2,174,768 2,398,430 3,142,660 3,105,503 3,402,317 3,107,136
Net debt 1,062,768 1,423,508 1,591,180 1,812,390 1,773,259 2,214,994 1,866,115
Adjusted EV 9,105,932 9,489,475 9,456,947 9,730,132 9,691,001 10,132,737 9,783,857
BVPS (RS) 357.3 405.6 463.3 610.7 667.9 726.1 810.5

Balance sheet ratios

Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Key ratios
Current ratio (x) 1.2 0.9 0.9 1.7 1.7 2.2 2.1
Growth in total assets (% YoY) 18.7 18.0 14.8 23.6 4.6 (0.5) 4.5
Growth in capital employed (% YoY) 11.5 19.9 11.5 26.4 5.6 13.3 2.7
Net debt to operating cashflow (x) 1.2 1.8 2.2 (2.4) 1.9 8.5 1.9
Gross debt to operating cashflow (x) 2.1 2.8 3.4 (4.1) 3.3 13.1 3.1
Gross debt to Ebitda (x) 4.7 4.7 3.7 3.7 3.6 3.8 2.6
Net debt/Ebitda (x) 2.6 3.1 2.5 2.2 2.1 2.5 1.6
Gearing
Net debt/equity (%) 45.2 53.4 53.6 45.8 41.1 47.3 35.7
Gross debt/equity (%) 82.9 81.6 80.7 79.5 71.9 72.6 59.5
Interest cover (x) 11.4 11.0 6.5 4.1 3.2 3.0 4.3
Debt Cover (x) 0.5 0.4 0.3 (0.2) 0.3 0.1 0.3
Working capital analysis
Inventory days 96.4 85.9 78.0 59.4 61.8 75.1 48.4
Debtor days 6.5 7.6 12.0 15.3 16.4 15.3 14.4
Creditor days 232.6 295.1 302.3 226.3 222.7 267.8 163.0
Working capital/Sales (%) (21.4) (32.6) (29.8) 8.7 6.0 18.7 14.6
Capital employed analysis
Sales/Capital employed (%) 80.3 74.7 85.8 98.4 93.4 68.4 90.5
EV/Capital employed (%) 266.9 232.0 207.3 168.7 159.1 146.8 138.1
Working capital/Capital employed (%) (17.2) (24.3) (25.6) 8.6 5.6 12.8 13.2
Fixed capital/Capital employed (%) 121.2 128.0 129.5 98.1 101.6 94.1 94.5
Other ratios (%)
EV/OCF (x) 10.0 12.2 13.3 (12.6) 10.4 39.1 9.7
EV/FCF (x) (41.7) (21.6) (85.6) (13.4) 49.8 (36.5) 19.0
EV/Sales (x) 3.3 3.1 2.4 1.7 1.7 2.1 1.5
Capex/depreciation (%) 979.4 1,047.0 491.9 20.6 355.6 235.2 166.9
Source: www.clsa.com

22 April 2020 vikash.jain@clsa.com 11

 A big deal Reliance Industries - BUY

Cashflow (Rsm)
Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Operating profit 296,740 348,880 472,990 629,840 648,676 670,042 898,629
Operating adjustments - - - - - - -
Depreciation/amortisation 115,650 116,460 167,060 209,340 207,003 228,276 294,285
Working capital changes 515,581 409,450 171,178 (1,661,390) 155,767 (544,750) (53,965)
Interest paid / other financial expenses - - - - - - -
Tax paid (13,560) (94,970) (100,010) 52,140 (80,707) (94,248) (134,127)
Other non-cash operating items - 0 0 0 0 0 0
Net operating cashflow 914,411 779,820 711,218 (770,070) 930,739 259,320 1,004,822
Capital expenditure (1,132,650) (1,219,340) (821,760) 43,180 (736,080) (536,979) (491,189)
Free cashflow (218,239) (439,520) (110,542) (726,890) 194,659 (277,659) 513,633
Acq/inv/disposals 7,611 3,190 (1,050) - - - 120,124
Int, invt & associate div 94,410 62,850 15,650 (72,470) (61,309) (92,316) (210,873)
Net investing cashflow (1,030,629) (1,153,300) (807,160) (29,290) (797,388) (629,295) (581,938)
Increase in loans 264,848 227,630 223,662 744,230 (37,157) 296,814 (295,181)
Dividends (37,000) (39,054) (39,160) (46,222) (48,000) (49,777) (51,555)
Net equity raised/others (59,340) 62,104 (24,750) 635,442 (23,220) (21,983) (22,450)
Net financing cashflow 168,508 250,680 159,752 1,333,450 (108,377) 225,054 (369,186)
Incr/(decr) in net cash 52,290 (122,800) 63,810 534,090 24,974 (144,921) 53,698
Exch rate movements (6,140) (10,310) (7,820) (11,070) (23,000) 0 0
Opening cash 838,220 884,370 751,260 807,250 1,330,270 1,332,244 1,187,323
Closing cash 884,370 751,260 807,250 1,330,270 1,332,244 1,187,323 1,241,021
OCF PS (RS) 141.2 120.1 110.8 (121.5) 146.8 40.9 158.5
FCF PS (RS) (33.7) (67.7) (17.2) (114.7) 30.7 (43.8) 81.0

Cashflow ratio analysis

Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Growth (%)
Op cashflow growth (% YoY) 69.3 (14.7) (8.8) (208.3) nm (72.1) 287.5
FCF growth (% YoY) - - - - - (242.6) -
Capex growth (%) 15.1 7.7 (32.6) (105.3) - (27.0) (8.5)
Other key ratios (%)
Capex/sales (%) 41.3 39.9 21.0 0.8 12.9 11.4 7.7
Capex/op cashflow (%) 123.9 156.4 115.5 (5.6) 79.1 207.1 48.9
Operating cashflow payout ratio (%) 3.4 4.2 5.0 - 4.6 17.1 4.6
Cashflow payout ratio (%) 4.0 5.0 5.5 - 5.2 19.2 5.1
Free cashflow payout ratio (%) - - - - 24.7 - 10.0

DuPont analysis
Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Ebit margin (%) 10.8 11.4 12.1 11.1 11.4 14.2 14.0
Asset turnover (x) 0.5 0.5 0.5 0.6 0.6 0.5 0.6
Interest burden (x) 1.3 1.2 1.0 0.9 0.9 0.9 0.9
Tax burden (x) 0.8 0.7 0.7 0.7 0.8 0.8 0.8
Return on assets (%) 4.1 4.0 4.5 5.0 4.9 4.9 6.3
Leverage (x) 2.4 2.6 2.7 2.6 2.5 2.3 2.2
ROE (%) 13.0 11.9 12.3 11.3 10.5 9.8 12.3

EVA® analysis
Year to 31 March 2016A 2017A 2018A 2019A 2020CL 2021CL 2022CL
Ebit adj for tax 228,330 260,222 341,703 452,406 498,532 510,931 677,304
Average invested capital 3,333,138 3,894,823 4,491,009 5,448,500 6,340,515 6,953,913 7,506,090
ROIC (%) 6.9 6.7 7.6 8.3 7.9 7.3 9.0
Cost of equity (%) 14.5 14.5 14.5 14.5 14.5 14.5 14.5
Cost of debt (adj for tax) 6.9 6.7 6.5 6.5 6.9 6.9 6.8
Weighted average cost of capital (%) 12.0 11.9 11.8 11.8 12.0 12.0 11.9
EVA/IC (%) (5.1) (5.2) (4.2) (3.5) (4.1) (4.6) (2.9)
EVA (Rsm) (170,815) (203,430) (189,761) (191,690) (260,572) (320,359) (218,007)
Source: www.clsa.com

22 April 2020 vikash.jain@clsa.com 12

 Important disclosures Reliance Industries - BUY

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Companies mentioned
Reliance Industries (RIL IB - RS1,236.05 - BUY)
Aramco (N-R)
Balaji Telefilms (N-R)
BP (N-R)
Den Networks (N-R)
EIH (N-R)
EsayGov (N-R)
Facebook (N-R)
Haptik (N-R)
Hathway (N-R)
Jio Platforms Limited (N-R)
KAI-OS (N-R)
KareXpert (N-R)
Network 18 (N-R)
NewJ (N-R)
Radisys (N-R)
Reliance Jio Infocomm Limited (N-R)
Reliance Retail Limited (N-R)
Reverie (N-R)
Sankhya Sutra Labs (N-R)
Tessereact (N-R)
TV 18 (N-R)
Whatsapp (N-R)

Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect my/our
own personal views about the securities and/or the issuers and that no part of my/our compensation was, is, or will
be directly or indirectly related to the specific recommendation or views contained in this research report.

22 April 2020 vikash.jain@clsa.com 13

 Important disclosures Reliance Industries - BUY

Important disclosures
Recommendation history of Reliance Industries Ltd RIL IB

Date Rec Target Date Rec Target

17 Apr 2020 BUY 1,500.00 19 Jun 2018 BUY 1,230.00
05 Dec 2019 BUY 2,010.00 21 Jan 2018 BUY 1,125.00
22 Oct 2019 BUY 1,710.00 15 Oct 2017 BUY 1,080.00
07 Aug 2019 BUY 1,530.00 20 Sep 2017 BUY 1,050.00
22 Apr 2019 BUY 1,665.00 08 Sep 2017 BUY 990.00
06 Sep 2018 BUY 1,500.00 24 Jul 2017 BUY 960.00*
30 Jul 2018 BUY 1,365.00 25 Apr 2017 BUY 855.00*
Source: CLSA; * Adjusted for corporate action

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22 April 2020 vikash.jain@clsa.com 14

 Important disclosures
Underperform / SELL - CLSA: 27.28%, Restricted - CLSA: 0.36%; Data
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Reliance Industries - BUY
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 Important disclosures
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