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Reliance Industries - A weak quarter but better visibility on Balance Sheet improvement - Result Review - HDFC Securities

Posted On: 2020-05-06 11:23:56


Our view that the stock should outperform, is premised on rising share of Non-cyclical domestic consumer business in EBITDA to 58% in FY21E v/s 41% in FY20 and a clear path to a stronger Balance Sheet. We have downgraded the stock to ADD from BUY as the stock has rallied by 28% over the past 2 weeks. The stock offers 6% upside at our TP of INR 1,560.

RIL reported standalone EBITDA/PAT of INR 113/25bn, -17/-63% YoY. The company made provision of INR 42bn for inventory losses due to sharp decline in oil prices, which has been disclosed as an exceptional item. Adjusting for this, EBITDA was INR 71bn, down 48% YoY. RPAT was 69% below our expectations, owing to higher interest cost of INR 42bn as against our est. of INR 25bn.

Refining: Crude throughput jumped 14/5% YoY/QoQ to 18.3mmt. GRM stood at USD 8.9/bbl, down from USD 9.2/bbl in 3Q. Sequential decline in refining margins was driven by lower cracks across products. RIL's GRMs outperformed Singapore GRM by USD 7.7/bbl (as against USD 7.6/bbl in 3Q). Attributing 50% of inventory loss to refining business implies a loss of USD 2.15/bbl.

Petchem: Production during 4Q was 9.9mmt, flattish QoQ and up 5% YoY. Petchem EBIT was INR 46bn, down 41/21% YoY/QoQ due to lower price realizations along with disruptions in local and regional markets. EBITDA/t stood at INR 6,063 (vs. INR 7,146 in 3QFY20, INR 9,959 in 4QFY19).

RJio: Revenues grew by 34/6% YoY/QoQ to INR 148bn. ARPU rose to INR 131 (+3/2% YoY/QoQ) while the gross/net subscriber addition was 24/17mn. We expect ARPU to increase to INR 142/155 in FY21/22E owing to tariff hike in Dec-19.

Reliance Retail (RR): COVID-19 induced pain was palpable for RR's nonessentials categories. Consumer Electronics (CE) declined by 43% YoY to INR 62bn and Fashion & Lifestyle (F&L) remained flat at INR 33bn. Despite the revenue dip, margins for both categories inexplicably improved. Adj. CE/F&L, EBITDA margins is estimated to have improved by 190/158bps YoY to 6.9/22.6% resp. in 4Q. Margin levers remain limited hereon as 1. High base, 2. Competitive intensity increases in CE (biggest EBITDA contributor) and 3. Omni-investments increase cost of doing biz. We maintain our FY21/22 estimates and build in Rev/EBITDA/PAT CAGR of 15/14/12% over FY20-22E. We assign an SOTP-based fair value of INR 2tn (EV), implying 19x Sep-FY21 EV/EBITDA (INR 363/sh) on RIL share count of 5.9mn.

Shares of RELIANCE INDUSTRIES LTD. was last trading in BSE at Rs.1461 as compared to the previous close of Rs. 1435.4. The total number of shares traded during the day was 656560 in over 27479 trades.

The stock hit an intraday high of Rs. 1478.8 and intraday low of 1447. The net turnover during the day was Rs. 960923481.


Source: Equity Bulls

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