INSTITUTIONAL EQUITY RESEARCH Reliance Industries...

INSTITUTIONAL EQUITY RESEARCH

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Reliance Industries Ltd (RIL IN) Refining shines again, Jio launch nears INDIA | OIL & GAS| Quarterly Update

18 July 2016

Top takeaways from Q1FY17

Consolidated PAT of Rs 71.1bn, 5% above our estimate. Numbers not fully comparable due to IndAS impact, though segment‐wise, refining was a major +ve surprise

GRM rose to US$ 11.5/bbl qoq from US$ 10.8, despite ~US$ 3/bbl decline in Singapore margins (we estimated US$ 10/bbl). ~US$ 2 accrued from spread hedging and inventory gains. Core margin was still a laudable US$ 4.5/bbl premium to Singapore

• Petchem volumes fell qoq due to lower polyester/intermediary output from Dahej water issue. EBIT was still 4% higher due to healthy polymer/polyester/rubber spreads

KG‐D6 gross gas production fell 10% qoq to 8.7mmscmd on natural decline while US shale production also fell 12% due to halt in drilling activity; but EBIT loss improved to Rs 3.1bn in Q1 from Rs 5.6bn in Q4, despite being a trailing quarter for shale

• Telecom (Jio) investments (June 2016 end) were at Rs 1,340bn, with Rs 140bn capex in Q1. With the RCOM deal largely done and beta testing through Lyf preview offer showing encouraging signs, commercial launch may be near

Key highlights: Consolidated EBITDA was flat qoq at Rs 112.3bn with robust refining offsetting weak E&P. IndAS impact was seen in upstream DD&A due to transfer from full‐cost to successful‐effort method, revaluation of property, adjustment in financial instruments, and higher deferred tax (ETR of 27%). Restated Q4 depreciation was down to Rs 31bn from Rs 36bn and further down 12% qoq in Q1. Consolidated net debt was up to Rs 958.8bn qoq from restated Rs 904.2bn while capex was Rs 266.9bn with ~Rs 80bn spent on downstream, ~Rs 20bn forex related. Creditors for capex was unchanged qoq at ~Rs 480bn. Refining throughput fell 6% qoq to 16.8mmt due to maintenance shutdown. Fuel outlet network stood at 1,022. Organised retail sales of Rs 66.7bn included Rs 10bn of COCO outlet petrol/diesel sales, which is a retail subsidiary with 361 stations.

Management takeaways Not pessimistic on refining because global utilisation is near peak levels and capacity addition expected is ~0.7mb/d against demand growth of ~1.4mb/d+ yoy

Indian petchem demand is strong, cotton prices supportive for polyester. Do not see threat of new polymer plants (OPaL/GAIL Pata) as India imports 1.5mmtpa of PE

• To go for sidetracking to revive two wells in MA (KG‐D6), CBM production is near start, industry asking for higher prices, testing contractors market for KG‐D6 satellite development to see viability under new gas price. Shale capex negligible with no drilling

• Petcoke gasification stage‐wise commissioning during Q3‐Q4FY17. PX/ROGC/ethane on schedule in Q2/Q3/Q3‐end. FY17 downstream capex estimate unchanged at US$ 18.5bn. To commission entire 1,400 fuel outlet network by September end

In telecom, 800MHz deployment nearing completion. Optimization in final stages across 18 circles. The four circles left will take 6‐8 weeks.

Beta phase of Jio Lyf preview offer has 1.5mn users. Test usage is strong with 26GB data consumed/user/month and 355 MOU voice/month. Usage is regionally distributed.

• Jio greenfield capex estimate unchanged at Rs 1,500bn+. To raise equity from current Rs 450bn to Rs 600bn. Current debt at Rs 450bn

Outlook and valuation: We partially adjust our estimates building in IndAS impact by aligning FY17/18 annual numbers based on Q1FY17 run‐rate. Our EBITDA would not change much, as we maintain our US$ 10/bbl GRM estimate for FY17 due to strong Q1 numbers and recovery in middle distillate cracks expected going forward. However, we lower our deprecation, increase other income and tax rate (to 27%) estimates, though our PAT estimates and target price remain unchanged. We maintain our positive view and Buy rating on RIL with a target price of Rs.1,160, as the company’s major downstream capex cycle comes to an end with key value‐added projects to drive earnings from FY18. Its telecom launch is also nearing and based on ramp up/performance, stock outlook would improve.

BUY (Maintain) CMP RS 1,012/ TARGET RS 1,160 (+15%) COMPANY DATA O/S SHARES (MN) : 3242MARKET CAP (RSBN) : 3270MARKET CAP (USDBN) : 4952 ‐ WK HI/LO (RS) : 1090 / 819LIQUIDITY 3M (USDMN) : 52.6PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Mar 16 Dec 15 Sep 15PROMOTERS : 45.2 46.7 45.2FII / NRI : 19.7 19.5 18.8FI / MF : 12.7 13.5 13.0NON PRO : 10.3 10.7 7.2PUBLIC & OTHERS : 12.2 9.6 15.9 KEY FINANCIALS Rs mn FY16* FY17E FY18ENet Sales 2,765 2,922 3,497EBIDTA 443 398 585Net Profit 272 220 298EPS, Rs 92.3 74.4 100.8PER, x 11.0 13.6 10.0EV/EBIDTA, x 9.7 10.9 7.2P/BV, x 1.2 1.1 1.0ROE, % 11.2 8.4 10.3Debt/Equity (%) 74.3 73.9 62.2 CHANGE IN ESTIMATES

__Revised Est. __ __% Revision__Rs bn FY17E FY18E FY17E FY18ERevenue 2,922 3,497 0% 0%EBITDA 398 585 0% 0%Core PAT 220 298 0% 0%EPS (Rs) 74.4 100.8 0% 0% Sabri Hazarika (+ 9122 6667 9756) [email protected]


RELIANCE INDUSTRIES QUARTERLY UPDATE

Consol (Rs bn) Q1FY17 Q1FY16 yoy gwth % Q4FY16 qoq gwth % vs. expectations % Comments Revenues 650 766 ‐15% 597 9% ‐16% Volumes impacted by refining/petchem shutdown Expenditure 538 667 ‐19% 485 11% ‐18% Shutdown EBITDA 112 100 13% 112 0% 0% EBITDA in line as higher GRM offset lower E&P Depreciation 27 28 ‐1% 31 ‐12% ‐20% IndAS restatement Interest 12 9 32% 8 43% 30% Forex adjustments Other Income 24 16 50% 20 22% 30% Better than expected yields Exceptional Items 0 0 1 ‐ PBT 97 79 23% 93 4% 10% Lower depreciation and higher other income Tax 26 20 32% 24 10% 28% IndAS related higher deferred tax, ETR at 27% PAT 71 59 20% 69 2% 5% Minor./Assc. 0 1 ‐78% 0 380% ‐ Reported Group PAT 71 60 18% 69 3% 5% Due to higher taxes EPS (Rs) 24.1 20.5 18% 23.5 3% 5% GRM ($/bbl) 11.5 10.4 11% 10.8 6% 15% Due to US$ 2/bbl of risk management/inventory gains Petchem EBIT 28 23 20% 27 4% ‐8% Due to lower volumes from Dahej water issue

Source: Company, PhillipCapital India Research Standalone quarterly Rs bn Q1FY17 Q1FY16 YoY Q4FY16 QoQRevenue 535 658 ‐19% 500 7%Expenditure 427 566 ‐25% 396 8%EBITDA 108 92 18% 103 5%Depreciation 20 20 ‐3% 23 ‐16%Interest 9 6 50% 6 58%Other Income 20 17 18% 21 ‐5%Exceptionals 0 0 0PBT 100 83 21% 96 4%Tax 24 19 28% 23 4%PAT 75 64 19% 72 4%OCI 3 3 ‐13% 2 26%Total CI 78 67 17% 74 5%Adj PAT 78 67 17% 74 5%Adj. EPS (Rs) 26.5 21.6 22% 25.2 5%EBITDA Margin 20% 14% 21%Tax Rate 24% 23% 24%Segmental EBIT 96 79 22% 89 8%Refining 66 51 28% 64 3%Petrochemicals 29 24 18% 27 7%Upstream Oil & Gas 0 2 ‐79% ‐2Others 1 1 57% 1 13%

IndAS Reconcilliation (Consol)

Rs mn Q1FY16 Q4FY16 FY16 FY16

Reserves

PAT under IGAAP 62,220 73,980 2,76,300 24,07,030

Upstream FCM to SEM 650 ‐3,180 ‐12,700 ‐3,95,700

FV of PPoE incl. Land 0 ‐990 39,590 4,52,720

FV of Financial Assets ‐2,630 2,290 ‐2,300 41,880

Deferred Tax 600 ‐1,800 ‐3,110 ‐1,36,650

Others ‐600 ‐1,000 ‐2,340 ‐2,150

PAT Under IndAS 60,240 69,300 2,95,440 23,67,130

Source: Company, PhillipCapital India Research Analyst Meet Takeaways Refining & Marketing

• Gasoline cracks were impacted despite higher demand as globally, refineries upped gasoline output. A new Indonesian refinery also curbed imports there while China and Japan increased runs. Naphtha market also remained well supplied. Middle distillate cracks improved qoq due to regional demand in India, Pakistan, Vietnam (drought related in SE Asia), Australia, and Africa. However, as supplies were adequate due to China and Korea, the rise was modest. FO was impacted by lower demand from Chinese teapots and competition from cheaper LNG.

• Asian oil and products demand strong driven by India, China, and South Korea. Stable AL‐AH differential and weak FO helped complex refiners. FO supply threat from Russian refinery up‐gradation is there but those projects are delayed. However with these upgrades, FO supplies will reduce and cracks may see a structural upward shift.



• Retail and PSU sale of refinery products increased qoq. RIL reopened 1,022 retail outlets till June end while entire network of 1,400 expected by September end. New outlets to be added thereafter. RIL’s R.O throughput at 230kl/month was much higher than competitors’ 160kl/m. Diesel sales to fleet transportation is being pushed. Petro/diesel sales up 21% qoq, LPG up 10% yoy to 21.4kt, while ATF increased by 38% yoy. Bulk diesel market share at 3.8% with entry into mining, railways, and STCs. Selling in India more attractive than exports, though East coast/eastern market is not that lucrative.

Petrochemicals • Cracker margins strong (above five‐years average) due to robust demand

and plant shutdowns. India demand strong at 12% yoy growth in polymer. China demand, though weak, is still up 3%. That country wants self‐sufficiency in polymer, which has created a glut. However CTO/MTO plants have shifted to the top of the cost curve. NE Asian units delayed. G20 meet in China to shut plants and improve pricing structure of petrochemicals (particularly polyester).

• Polyester markets stable. Cotton prices are supportive. PX/PTA seeing capacity rationalisation. However, Chinese operating rates higher due to which RIL is focusing on Indian market. US election to drive textile demand and Chinese activities. MEG deltas softened due to excess supply (in China). PSF delta strengthened due to western world demand. OPaL commissioning has been delayed.

Downstream project updates

• Petcoke gasification to be commissioned in stages in Q3‐Q4 FY17. The quarters would see gradual ramp up (5‐6 months) and by FY18, 100% capacity utilisation is targeted. Economics remain healthy with delivered LNG price in Jamnagar at US$ 7/mmbtu vs. FOB price of US$ 5/mmbtu+. Coke sales will gradually be reduced for internal consumption, though can import and sell too. Have started storing coke for pre/commissioning activities of project.

• PX and ROGC on schedule for commissioning in Q2FY17 and Q3FY17 respectively. Can commission ROGC before petcoke gasification. ROGC to take 30‐60 days to ramp up. PX capacity to double to 4.3mmtpa.

• Ethane sourcing to also start soon (Q3FY17‐end) with five ships delivered. Ethane price rise would not have much impact on economics.

• Downstream capex estimate unchanged at US$ 18.5bn. Rs 80bn was downstream capex in Q1FY17, hence, cumulative US$ 16.7bn done till Q1 end.

Downstream Projects Q3FY16 End FY16 End Q1FY17 end

ROGC 4,000 4,500 4,500 Petcoke Gasification 5,000 5,500 5,500

Ethane Sourcing 1,500 1,500 1,500 Other Downstream 6,500 7,000 7,000

Total 17,000 18,500 18,500 Capex Done Cumulatively 14,500 15,500 16,696

Remaining Capex 2,500 3,000 1,804

Commissioning Schedule PX Q2FY17 ROGC Q3FY17 Petcoke Gasification Q3‐Q4FY17 Ethane Sourcing Q3FY17 end 1400 Fuel Outlets Q2FY17 End

Source: Company, PhillipCapital India Research


Upstream Oil & Gas • Currently 11 wells in D1/D3 and 3 in MA are operating in KG‐D6 block. RIL to

go for sidetracking to revive two wells in MA. Panna Mukta had a 4‐day shutdown while Tapti decommissioning is on.

• In CBM, GGS 11 commissioned with test production on while GGS 12 to be done by Q2. Shahdol Phulpur line also under testing. Have invested US$ 300mn in CBM. CBM industry is pitching for higher price with government, in line with PSC term for market‐determined pricing.

• Done studies on KG‐D6 satellites on the basis of tough gas pricing premium. Now going to the market for quotes from contractors on project capex, to see viability. DoC submitted for D29, D30 discovery to Management Committee for review. Satellites will commission by FY20, if work starts this year.

• MJ to also be developed simultaneously and commission by FY21. Niko’s reported reserve up‐grade was for including MJ1 and in line with RIL.

• Satellite fields not part of ONGC gas migration dispute. Mining lease for this to be 20‐years after exploration phase.

• Have seen improved realisation in Marcellus shale compared to Henry Hub gas prices. Natural gas pricing outlook is improving and WTI has also recovered. NGL prices are also up with ethane, propane recovering. Do not plan major drilling capex at current prices. Cumulative US shale investment at US$ 9bn.

Upstream status KGD6 D1/D3 Natural decline to continue KGD6 MA Sidetracking to revive 2 wells KGD6 Satellites DoC for D29,D30 submitted to MC, Done studies based on gas premium. Now testing

contractors' market to see viability KGD6 MJ1 TO be developed with satellites, Timeline target FY20‐21CBM Sohagpur Test production from GGS11, GGS12 by Q2FY17, SPPL under testing/comm.US Shale No drilling under current pricing scenario

Source: Company, PhillipCapital India Research Organised retail

• Added 138 stores in Q1FY17. Expanding rapidly in tier‐2 cities. AJio e‐commerce platform to bridge online‐offline sales. Have sold 2mn smartphones (Lyf), 20 Lyf models ranging from Rs 3,000 to Rs 20,000.

• Sales of Rs 66.7bn in Q1FY17 include Rs 10bn as petrol/diesel sales from COCO outlets. RIL has 361 COCO operating outlets and 90 more would be commissioned. Retail segment gets dealer margin of Rs 1,100/kl.

Telecom (Jio)

• Completed transaction for transfer of spectrum in 800MHz band from RCOM to Jio across 13 circles. Sharing of spectrum in 800MHz band with RCOM across 21 circles. 800MHz deployment nearing completion. Optimization in final stages across 18 circles. Received frequency allocation in balance four circles (Karnataka, Tamil Nadu, Kerala, Rajasthan) on 6th July. Deployment and optimization in these circles to take 6‐8 weeks. Paid Rs 25bn to RCOM in Q1FY17

• Network largely stabilised. To move towards carrier aggregation. Beta phase of Jio Lyf preview offer has 1.5mn users. Test usage is strong with 26GB data consumed/user/month and 355 MOU voice/month. Usage is regionally distributed. Jio apps widely used; apps being optimised. 45‐47,000 users being added every day. Currently data usage in general is less than 1GB/user/month. Expect this to go up. Jio usage higher due to free data, which will come down, but still could be much higher than current usage.




• Nearing commercial launch. Cumulative capex till June 2016 end was Rs 1,340bn. Of this, spent Rs 500bn on spectrum, Rs 350bn on equipments, Rs 350bn on network infra (towers & fibres), and remaining on interest/opex capitalised. Have 92,000 towers currently. Greenfield capex to be Rs 1,500bn+, as CMD Mr Mukesh Ambani said. Most expenditure over; not much capex left for launch. 70% population coverage initially (CY16‐end) pan India. 90% coverage planned in 12‐18months thereafter. Launch window to be narrow across India.

• A base of 200mn users using 15‐20GB data/month/user can be network’s peak load capacity though operating at that level is challenging. At 4‐5GB usage, capex won’t be high for RIL. Will keep adding fibre network though. Current Jio full time employee base is 32‐33,000.

• Currently Jio equity is ~Rs 450bn while ~Rs 450bn is debt with remaining as deferred payments and spectrum liabilities. Can increase equity to Rs 600bn.

Jio Capex Breakup Jio Infra Breakup Rs.bn FY16end Q1FY17end Rs.bn Q1FY17end

Equity 450 450 Spectrum 500

Debt 330 450 Equipments 350

Deferred spectrum 150 150 Fibres+Towers 350

Deferred Payment 150 180 Interest/Opex Capitalised. 140

Others 110 110 Total 1,340

Total 1,190 1,340 Source: Company, PhillipCapital India Research

Detailed quarterly metrics Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 I Q2FY16 Q3FY16 Q4FY16 I Q1FY17 I YoY QoQ

Refining & Marketing RIL's Average GRM ($/bbl) 8.7 8.3 7.3 10.1 10.4 10.6 11.5 10.8 11.5 11% 6%Singapore GRM ($/bbl) 5.8 4.8 6.3 8.6 8.0 6.3 8.0 7.7 5.0 ‐38% ‐35%OPEX/bbl ($) 2.3 2.0 2.1 2.5 2.5 2.8 3.0 2.4 2.3 ‐10% ‐4%Petrol Cracks ($/bbl) 16.1 13.2 13.4 15.4 19.8 19.4 18.7 18.8 14.5 ‐27% ‐23%Diesel Cracks ($/bbl) 16.0 14.4 16.0 16.2 13.8 10.8 13.8 9.6 10.5 ‐24% 9%Jet Kero Cracks ($/bbl) 14.3 14.5 17.7 17.1 13.5 10.9 14.1 11.7 11.1 ‐18% ‐5%Naphtha Cracks ($/bbl) ‐1.0 ‐1.6 ‐5.1 1.5 ‐0.5 ‐1.2 7.1 6.1 0.7 na/nm ‐89%FO Cracks ($/bbl) ‐12.8 ‐10.5 ‐7.2 ‐3.0 ‐4.9 ‐9.0 ‐7.3 ‐5.8 ‐9.5 na/nm na/nmAL‐AH Differential 4.9 4.8 3.6 3.6 3.4 2.7 3.2 2.8 2.8 ‐18% 0%Refining Throughput (mmt) 16.7 17.3 17.7 16.2 16.6 17.1 18.0 17.8 16.8 1% ‐6%Domestic Sales incl. PSUs (mmt) 3.7 3.9 na/nm na/nm 4.4 3.3 4.0 3.7 4.1 ‐8% 11%Exports (mmt) 2.3 2.7 na/nm na/nm 2.8 2.7 2.7 2.6 2.7 ‐3% 4%Captive Consumption (mmt) 10.2 10.7 11.9 9.7 8.5 11.1 10.9 10.8 9.8 16% ‐9%Fuel Stations Operational na/nm na/nm na/nm na/nm na/nm na/nm 750 950 1,022 na/nm 8%Consol Refining EBIT (Rs.bn) 38.1 38.4 32.7 49.0 52.4 54.6 64.9 63.8 65.9 26% 3%Petchem Total Volumes (mmt) ‐ India 5.4 5.7 5.3 5.6 5.8 6.2 6.4 6.3 6.1 5% ‐3%Polymer Production 1.1 1.1 1.0 1.0 1.1 1.2 1.2 1.1 1.1 4% 1%Polyester Production 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6 0.5 0% ‐13%Intermediary Production 1.2 1.2 1.2 1.2 1.5 1.5 1.7 1.8 1.5 6% ‐14%Standalone EBITDA/mt ($) 161 187 173 176 172 166 158 162 177 3% 9%Consol Petchem EBIT (Rs.bn) 18.6 23.6 20.6 20.0 23.3 25.3 26.4 27.0 28.1 20% 4%Polymer Deltas PP‐Propylene ($/mt) 233 257 378 245 339 323 346 218 285 ‐16% 31%HDPE‐Naphtha ($/mt) 608 682 798 700 807 791 700 776 759 ‐6% ‐2%PVC‐Naphtha‐EDC ($/mt) 418 455 458 485 432 450 429 451 468 8% 4%Polyester Deltas POY‐PTA‐MEG ($/mt) 357 358 487 305 235 233 212 229 206 ‐12% ‐10%PSF‐PTA‐MEG ($/mt) 177 177 271 226 172 214 218 181 210 22% 16%PET‐PTA‐MEG ($/mt) 166 119 190 152 118 145 141 127 156 32% 23%Fibre Intermediary Deltas PX‐Naphtha ($/mt) 313 437 360 306 361 361 346 391 391 8% 0%PTA‐PX ($/mt) 109 116 109 100 133 89 92 104 103 ‐23% ‐1%MEG‐Naphtha ($/mt) 315 370 398 457 571 463 317 409 366 ‐36% ‐11%


Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 I Q2FY16 Q3FY16 Q4FY16 I Q1FY17 I YoY QoQElastomer Deltas Butadiene‐LPG ($/mt) 395 613 365 321 652 562 294 564 650 0% 15%PBR‐Butadiene ($/mt) 588 566 671 515 324 346 428 280 440 36% 57%SBR‐BD‐Styrene ($/mt) 590 601 681 495 261 374 413 302 458 75% 52%Oil & Gas Total Oil & Gas Revenue (Rs.bn) 31.8 30.0 28.4 25.1 20.5 20.7 17.7 14.6 13.4 ‐35% ‐8%Total Oil & Gas EBIT (Rs.bn) 10.4 8.2 8.3 4.9 2.0 2.4 0.9 ‐5.6 ‐3.1 na/nm na/nmKG‐D6 Gas Production (mmscmd) 13.1 12.5 11.9 11.5 11.4 11.4 10.6 9.7 8.7 ‐23% ‐10%KG‐D6 Oil Production (bbl/d) 5,824 5,435 5,435 5,556 4,835 4,239 3,913 3,626 3,077 ‐36% ‐15%PMT Gas Production (mmscmd) 7.1 6.3 6.6 6.4 5.8 5.5 5.4 5.6 5.3 ‐9% ‐6%PMT Oil Production (bbl/d) 23,077 20,217 20,109 18,333 17,582 20,761 17,826 20,110 18,681 6% ‐7%Domestic Oil & Gas EBIT (Rs.bn) 4.9 3.3 2.7 1.6 2.3 0.6 0.4 ‐2.4 0.5 ‐79% na/nmUS Shale EBIT (Qtr Trailing) (Rs.bn) 5.6 4.9 5.7 3.4 ‐0.3 1.9 0.6 ‐3.2 ‐3.5 na/nm na/nmUS Shale Revenue ($mn) (Current) 270 244 206 138 141 117 111 82 93 ‐34% 13%US Shale EBITDA ($mn) (Current) 201 202 174 91 86 63 59 28 40 ‐53% 43%US Shale Net Sales (mmscmd) 12.9 13.2 13.9 12.9 13.0 13.2 14.1 13.4 12.1 ‐7% ‐9%US Shale Net Production (mmscmd) 15.3 15.3 16.0 15.5 15.3 15.7 16.7 15.7 13.8 ‐10% ‐12%Cumulative Capex ($bn) 7.4 7.7 7.9 8.2 8.7 8.7 8.8 8.9 9.0 4% 1%Retail Retail Revenue (Rs.bn) 40.0 41.7 46.9 47.9 45.7 50.9 60.4 56.5 66.7 46% 18%Retail PBIDT (Rs.bn) 1.7 1.9 2.3 2.0 2.0 2.1 2.4 2.2 2.4 21% 9%Retail EBIT (Rs.bn) 0.8 1.0 1.3 1.0 1.1 1.2 1.5 1.3 1.5 31% 16%EBITDA Margin 4.3% 4.5% 4.8% 4.2% 4.3% 4.1% 4.0% 3.9% 3.6%Store Count (No.s) 1,723 2,006 2,285 2,621 2,747 2,857 3,043 3,245 3,383 23% 4%Retail Area (mn.sq.ft) 11.8 12.0 12.3 12.5 12.5 12.7 12.8 12.8 13.0 4% 2%Cities Present 148 150 166 180 210 250 371 532 679 223% 28%Others Other Segments Revenue (Rs.bn) 17.7 24.6 34.5 28.3 21.5 28.7 31.3 23.7 24.2 12% 2%Other Segments EBIT (Rs.bn) 1.2 2.7 2.5 3.2 2.5 2.3 2.9 3.2 1.3 ‐49% ‐60%Others EBIT Margin (Rs.bn) 6.5% 11.1% 7.2% 11.4% 11.7% 8.0% 9.1% 13.4% 5.3%Consol Balance Sheet (Rs.bn) Gross Debt 1,358 1,421 1,500 1,609 1,708 1,728 1,781 1,804 1,867 9% 3%Cash & Equivalent 816 835 787 845 874 857 917 900 908 4% 1%Net Debt 542 586 713 764 834 870 863 904 959 15% 6%Creditors For Capex ‐ ‐ ‐ ‐ ‐ ‐ ‐ 480 480 na/nm 0%Capex 152 297 254 300 327 202 286 315 267 ‐18% ‐15%Consol P&L A/C (Rs.bn) Gross Sales 1,079 1,134 963 709 825 751 733 639 715 ‐13% 12%Excise Duty 33 36 28 34 59 42 51 43 65 10% 52%Net Revenue 1,046 1,098 935 675 766 709 683 597 650 ‐15% 9%COGS 851 887 735 467 559 495 463 373 431 ‐23% 15%OPEX 105 112 114 109 108 107 106 112 107 ‐1% ‐4%EBITDA 90 98 87 99 100 107 114 112 112 13% 0%EBITDA Margin 9% 9% 9% 15% 13% 15% 17% 19% 17%DD&A 28 30 30 28 28 32 31 31 27 ‐1% ‐12%Interest Cost 5 10 11 7 9 10 9 8 12 32% 43%Other Income 20 20 23 22 16 16 24 20 24 50% 22%PBT 77 78 69 86 79 82 97 92 97 23% 5%Exceptionals ‐ ‐ ‐ ‐ ‐ 3 ‐ 1 ‐ na/nm ‐100%PBT After Exceptionals 77 78 69 86 79 84 97 93 97 23% 4%Current Tax 15 16 14 17 18 18 23 21 23 27% 8%Deferred Tax 2 3 3 3 1 ‐0 1 2 3 85% 30%PAT 59 59 52 65 59 66 74 69 71 20% 2%Minority+Associates 0 0 1 ‐1 1 1 ‐1 0 0 ‐78% 380%Group PAT 60 60 53 64 60 67 73 69 71 18% 3%EPS (Rs) 20.3 20.3 17.9 21.7 20.5 22.8 24.7 23.5 24.1 18% 3%OCI ‐ ‐ ‐ ‐ 2 ‐ ‐ ‐1 4 75% na/nmTotal CI 60 60 53 64 62 67 73 69 75 20% 9%Adjusted PAT 60 60 53 64 62 65 73 68 75 20% 10%Adjusted EPS (Rs) (inc OCI) 20.3 20.3 17.9 21.7 21.1 22.0 24.7 23.0 25.3 20% 10%Shares O/S (bn) 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 0% 0%Reported NPM 6% 5% 6% 9% 8% 9% 11% 12% 11%Tax Rate 23% 24% 25% 24% 25% 21% 24% 25% 27%Standalone Net Revenue (Rs.bn) 964 965 802 560 658 608 566 500 535 ‐19% 7%Standalone EBITDA (Rs.bn) 75 82 72 86 92 98 103 103 108 18% 5%Standalone PAT (Rs.bn) 56 57 51 62 64 66 72 72 75 19% 4%Total CI 56 57 51 62 67 66 72 74 78 17% 5%Standalone Rep. EPS (Rs) Ex OCI 17.5 17.8 15.7 19.3 19.7 20.3 22.3 22.3 23.3 18% 4%

Source: Company, PhillipCapital India Research, I is IndAS



Financials & Valuation Y/E, March 31, Std. (Consol) FY14 FY15 FY16* FY17E FY18ERevenues (Rs.bn) 4,345 3,754 2,765 2,922 3,497EBITDA (Rs.bn) 348 374 443 398 585Reported PAT (Rs.bn) 225 236 276 220 298Adjusted PAT (Rs.bn) 225 236 272 220 298Growth 8% 5% 15% ‐19% 36%

Reported EPS (Rs.) 76.5 80.1 93.7 74.4 100.8Adjusted EPS (Rs.) 76.5 80.1 92.3 74.4 100.8Adjusted PE (x) 13.2 12.6 11.0 13.6 10.0PB (x) 1.5 1.4 1.2 1.1 1.0EV/EBITDA (x) 10.5 10.6 9.7 10.9 7.2RoE 11% 11% 11% 8% 10%RoCE 7% 6% 7% 5% 8%Debt:Equity (x) 0.7 0.7 0.7 0.7 0.6Book Net Debt (Rs.bn) excl LT Inv. 670 973 1,305 1,361 1,202Average GRM ($/bbl) 8.1 8.6 10.8 10.0 13.0Petchem Production (mmt) 12.0 12.2 14.4 15.8 18.8Petchem EBITDA/mt ($) 147 149 147 148 198Domestic+Shale Gas Output (mmscmd) 20.8 22.5 21.7 20.5 21.2Growth ‐17% 8% ‐4% ‐5% 4%

Telecom EBITDA ‐ ‐50 ‐35

Source: Company, PhillipCapital India Research SOTP Valuation Rs.bn (FY18E, Consol) Method Head Multiple EV EV/shRefining EV/EBITDA 322 6.5 2,096 710RPetrochemicals EV/EBITDA 245 6.5 1,593 540Upstream Oil & Gas DCF‐EV/EBITDA 46 5.8 270 92Organised Retail EV/Sales 251 0.5 125 43Others EV/Sales 97 1.0 97 33Telecom EV/Investments 1,500 0.5 750 254Total 4,931 1,670Adj. Net Debt (FY17E End) 1,006 341Creditors For Capex 500 169Equity Value 1,160Shares O/S (mn) 2,952

Source: Company, PhillipCapital India Research PE Based Valuation Rs./sh (Consol.) FY14 FY15 FY16* FY17E FY18ERIL's Adjusted EPS 76.5 80.1 92.3 74.4 100.8Target Multiple (x) 11.5SOTP Target Price 1,160

Source: Company, PhillipCapital India Research



Financials

Income Statement Y/E Mar, Rs bn FY15 FY16* FY17e

Cash Flow Y/E Mar, Rs bn FY15 FY16* FY17eFY18e FY18e

Net sales 3,754 2,765 2,922 3,497 Pre‐tax profit 311 358 304 410Growth, % ‐14 ‐26 6 20 Depreciation 115 129 140 199Other income 0 0 0 0 Chg in working capital ‐19 448 34 ‐114Total income 3,754 2,765 2,922 3,497 Total tax paid ‐64 ‐81 ‐71 ‐99

Cash flow from operating activities 344 854 407 396Raw material expenses 2,940 1,891 2,173 2,490Employee expenses 63 77 83 88 Capital expenditure ‐632 ‐1,271 ‐479 ‐217Other Operating expenses 378 355 268 334 Chg in investments ‐119 111 40 36EBITDA (Core) 374 443 398 585 Chg in marketable securities 102 76 90 93

Cash flow from investing activities ‐649 ‐1,084 ‐349 ‐88Growth, % 7 18 ‐10 47Free cash flow ‐305 ‐229 58 308Margin, % 10.0 16.0 13.6 16.7Equity raised/(repaid) 2 2 ‐2 ‐1Depreciation ‐115 ‐129 ‐140 ‐199

EBIT 258 313 258 386 Debt raised/(repaid) 48 209 57 ‐262Cash flow from financing activities 51 211 55 ‐263Growth, % 9 21 ‐18 49Net chg in cash ‐254 ‐19 113 45Margin, % 6.9 11.3 8.8 11.0

Interest paid ‐33 ‐36 ‐44 ‐69 Other Non‐Operating Income 86 76 90 93 Non‐recurring Items 0 4 0 0 Valuation Ratios

FY15 FY16* FY17ePre‐tax profit 311 358 304 410

FY18eTax provided ‐75 ‐83 ‐82 ‐111Per Share dataEPS (INR) 80.1 92.3 74.4

299Profit after tax 236 275 222100.8Others (Minorities, Associates) ‐1 1 ‐2 ‐1

Growth, % 4.7 15.3 (19.4) 35.5Net Profit 236 276 220 298Book NAV/share (INR) 742.4 826.5 889.9 974.4 CEPS (INR) 119.3 134.7 121.8 168.2 CFPS (INR) 219.4 293.4 126.5 123.8

Balance Sheet Y/E Mar, Rs bn FY15 FY16* FY17e

Return ratiosReturn on assets (%) 5.5 5.4 4.0 5.2FY18eReturn on equity (%) 10.8 11.2 8.4 10.3Cash & bank 125 107 220 265Return on capital employed (%) 7.4 7.3 5.5 7.2Marketable securities at cost 510 399 359 323Turnover ratiosAsset turnover (x) 1.4 0.9 0.8

Debtors 53 49 52 621.0Inventory 532 470 496 594

Sales/Total assets (x) 0.8 0.5 0.5 0.5Loans & advances 307 355 373 446Sales/Net FA (x) 1.4 0.7 0.7 0.8Other current assets 33 58 61 73Working capital/Sales (x) (0.1) (0.3) (0.3) (0.3)Total current assets 1,561 1,437 1,561 1,763Receivable days 5.2 6.5 6.5 6.5Investments 254 370 374 377Inventory days 51.8 62.0 62.0 62.0Gross fixed assets 2,889 3,628 5,143 6,085Payable days 64.1 96.2 96.2 91.4Less: Depreciation 1,324 1,453 1,593 1,792Working capital days (51.9) (125.8) (126.8) (98.0)Add: Capital WIP 1,665 2,081 1,040 312Liquidity ratios Current ratio (x) 1.1 0.7 0.8

Net fixed assets 3,229 4,255 4,590 4,6040.8Non‐current assets 0 0 0 0

Quick ratio (x) 0.7 0.5 0.5 0.5Total assets 5,045 6,062 6,525 6,745Interest cover (x) 7.8 8.7 5.8 5.6

Current liabilities 931 1,452 1,577 Total debt/Equity (%) 73.6 74.3 73.9 62.21,676Net debt/Equity (%) 67.9 69.9 65.5 53.0Provisions 69 35 39 43Valuation PER (x) 12.6 11.0 13.6

Total current liabilities 1,000 1,487 1,616 1,71910.0Non‐current liabilities 1,829 2,106 2,251 2,116

PEG (x) ‐ y‐o‐y growth 2.7 0.7 (0.7) 0.3Total liabilities 2,829 3,593 3,867 3,835Price/Book (x) 1.4 1.2 1.1 1.0Paid‐up capital 60 62 60 59EV/Net sales (x) 1.1 1.6 1.5 1.2Reserves & surplus 2,155 2,407 2,598 2,852EV/EBITDA (x) 10.6 9.7 10.9 7.2Shareholders’ equity 2,215 2,469 2,658 2,910EV/EBIT (x) 15.3 13.7 16.8 10.9Total equity & liabilities 5,045 6,062 6,525 6,745Per Share data EPS (INR) 80.1 92.3 74.4

Source: Company, PhillipCapital India Research Estimates 100.8

* implies certain FY16 figures are estimates Growth, % 4.7 15.3 (19.4) 35.5 Book NAV/share (INR) 742.4 826.5 889.9 974.4



Stock Price, Price Target and Rating History

B (TP 1160)

400

450

500

550

600

650

700

750

800

850

900

950

1000

1050

1100

M‐16 A‐16 J‐16

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.




Contact Information (Regional Member Companies)

SINGAPORE: Phillip Securities Pte Ltd 250 North Bridge Road, #06‐00 RafflesCityTower,

Singapore 179101 Tel : (65) 6533 6001 Fax: (65) 6535 3834

www.phillip.com.sg

MALAYSIA: Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN: Phillip Securities Japan, Ltd 4‐2 Nihonbashi Kabutocho, Chuo‐ku

Tokyo 103‐0026 Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141

www.phillip.co.jp

INDONESIA: PT Phillip Securities Indonesia ANZTower Level 23B, Jl Jend Sudirman Kav 33A,

Jakarta 10220, Indonesia Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809

www.phillip.co.id

CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, OceanTower Unit 2318

Shanghai 200 001 Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940

www.phillip.com.cn

THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, VorawatBuilding, 849 Silom Road,

Silom, Bangrak, Bangkok 10500 Thailand Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921

www.phillip.co.th

FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance

75008 Paris France Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017

www.kingandshaxson.com

UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street

London, EC4N 6AS Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835

www.kingandshaxson.com

UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 3050

The Chicago Board of TradeBuilding Chicago, IL 60604 USA

Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA: PhillipCapital Australia Level 10, 330 Collins Street

Melbourne, VIC 3000, Australia Tel: (61) 3 8633 9800 Fax: (61) 3 8633 9899

www.phillipcapital.com.au

SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha,

Colombo 2, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research IT Services Pharma & Speciality Chem

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Surya Patra (9122) 6667 9768Nitesh Sharma, CFA (9122) 6667 9965 Shyamal Dhruve (9122) 6667 9992 Mehul Sheth (9122) 6667 9996Banking, NBFCs Infrastructure StrategyManish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Pradeep Agrawal (9122) 6667 9953 Deepak Agarwal (9122) 6667 9944 Anindya Bhowmik (9122) 6667 9764Paresh Jain (9122) 6667 9948 Logistics, Transportation & Midcap TelecomConsumer & Retail Vikram Suryavanshi (9122) 6667 9951 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Media Manoj Behera (9122) 6667 9973Jubil Jain (9122) 6667 9766 Manoj Behera (9122) 6667 9973 TechnicalsPreeyam Tolia (9122) 6667 9950 Metals Subodh Gupta, CMT (9122) 6667 9762Cement Dhawal Doshi (9122) 6667 9769 Production ManagerVaibhav Agarwal (9122) 6667 9967 Yash Doshi (9122) 6667 9987 Ganesh Deorukhkar (9122) 6667 9966Economics Midcap EditorAnjali Verma (9122) 6667 9969 Amol Rao (9122) 6667 9952 Roshan Sony 98199 72726Engineering, Capital Goods Mid‐Caps & Database Manager Sr. Manager – Equities SupportJonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944 Rosie Ferns (9122) 6667 9971

Oil & GasSabri Hazarika (9122) 6667 9756

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Bharati Ponda (9122) 6667 9943Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974Ashka Mehta Gulati (9122) 6667 9934 ExecutionArchan Vyas (9122) 6667 9785 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/


Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

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This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.

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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

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research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of thecompany(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

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