TP: INR1,005 (+15%) Upgrade to Buy

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1 BSE SENSEX S&P CNX 32,433 10,167 Bloomberg RIL IN Equity Shares (m) 6,502.0 M.Cap.(INRb)/(USDb) 5,700.3/ Week Range (INR) 891 / 466 1, 6, 12 Rel. Per (%) 6/18/48 Avg Val, INRm Free float (%) 55.0 Financials & Valuations (INR b) Y/E March E 2019E Net Sales 2,420 3,146 3,723 EBITDA Net Profit EPS (INR) EPS Gr. (%) BV/Sh. (INR) RoE (%) RoCE (%) Payout (%) Valuations P/E (x) P/BV (x) EV/EBITDA (x) EV/Sales (x) Estimate change TP change Rating change Shareholding pattern (%) As On Sep-17 Jun-17 Sep-16 Promoter DII FII Others FII Includes depository receipts Stock Performance (1-year) Reliance Inds. Sensex - Rebased Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 CMP: INR October QFY18 Results Update Sector: Oil & Gas Reliance Industries TP: INR1,005 (+15%) Upgrade to Buy Standalone EBITDA in line; RJio delivers +ve EBIT from 1 st quarter itself Reliance Industries (RIL) 2QFY18 standalone EBITDA rose 23% YoY (+12% QoQ) to INR129.8b, largely in line with our estimate of INR126b. PAT rose 7% YoY (+1% QoQ) to INR82.6b, below our estimate of INR88.2b, due to higher interest expense of INR13b (est. of INR9.4b) and a higher tax rate at 27.9% v/s 22% in 1QFY18 and 24% in 2QFY17. Interest expense was higher due to forex loss of INR4.5b. GRM of USD12/bbl was below our estimate of USD12.6, while refining throughput of 18.1mmt was ahead of our estimate of 17.5mmt. GRM of USD12/bbl: While Singapore complex GRM increased from USD6.4/bbl in 1QFY18 to USD8.3/bbl, RIL s GRM increased only from USD11.9/bbl to USD12/bbl due to lower light-heavy and Brent-Dubai differentials. There could also be some hedging losses as cracks moved up sharply in the quarter. Petchem drives core performance: Refining EBIT stood at INR65.3b (+11% YoY, +2% QoQ), led by GRM of USD12/bbl (+19% YoY, +1% QoQ) and throughput of 18.1mmt (+1% YoY, +3% QoQ). Petchem EBIT rose 42% YoY (+23% QoQ) to INR49b, led by a favorable margin and strong volume growth. EBIT margin of 18.3% came in ahead of 16.3% in 2QFY17, primarily due to the strengthening of intermediates and polyester chain deltas. ROGC commissioned: ROGC has been commissioned, while other downstream units are being commissioned and would take days for full ramp-up. Petcoke gasifier is expected to be commissioned by early Domestic E&P continues to shrink: E&P EBIT stood at -INR960m v/s INR240m in 2QFY17 and -INR2.3b in 1QFY18. KG-D6 gas production declined to 5.4mmscmd (-28.4% YoY, -13% QoQ). Shale gas production was down to 33.5bcfe (-19% YoY,-3.5% QoQ) due to natural decline and temporary shut-in of wells. RJio turns EBITDA positive in 1st quarter of reporting itself RJio reported stellar revenues of INR61.5b, led by ARPU of INR156, coming partly from 1QFY18 recharges. In effect, we believe that if recharges from both 1QFY18 and 2QFY18 were accounted on an accrual basis, ARPU would have been ~INR130 for the quarter. Data consumption remained 4-5x of Bharti, while MOUs are 50% higher, with 3.8bGB of data consumption. EBITDA of INR14.4b benefited from lower-than-expected opex, coupled with network and employee expense capitalized. In 2HFY18, we expect addition of 42m subscribers, taking the overall subscriber base to 181m by March 18 and 205m by March 19, from 139m in 2QFY18, with ARPU estimates of INR156/INR172 in FY18E/FY19E. 2QFY18 consol. capex at INR160b: Consol. gross debt was INR2.14t, with cash of INR770b. Consol. capex stood at INR160b, of which INR70b was on RJio. Valuation and view: The company is coming to an end of its capex cycle in the standalone business. We believe that with strong risk management, better yield management and crude optimization, the company would clock GRM of USD11.5/bbl, going forward. Commissioning of downstream units of ROGC would boost the petchem performance further. We are increasing our petchem delta estimate due to delays in US petchem expansions. While E&P still appears to be a laggard in the near term, some light appears on the horizon with the award of long lead items for the development of R-series. RJio appears to have surprised with positive EBIT in the first quarter itself this would remain key to stock performance. We raise our RJio valuation to INR245/share from INR190/share. On FY19E basis, the stock trades at 13.7x adj. SA EPS of INR64 and EV/EBITDA of 9.2x. Our SOTP-based fair value stands at INR1,005/share, implying an upside of 15%. We thus upgrade our rating to Buy. Swarnendu Bhushan Research Analyst (Swarnendu.Bhushan@MotilalOswal.com); Abhinil Dahiwale Research Analyst (Abhinil.Dahiwale@MotilalOswal.com); Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 Standalone - Quarterly Earning Model (INR Million) Y/E March FY17 FY18E FY17 FY18E 2QFY18 Var v/s 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE Est. Est. (%) Net Sales 534, , , , , , , ,631 2,420,250 3,145, , YoY Change (%) Total Expenditure 426, , , , , , , ,403 1,987,690 2,622, , EBITDA 108, , , , , , , , , , , Margins (%) Depreciation 19,500 20,290 20,770 24,090 21,580 22,680 27,456 27,456 84,650 99,172 23, Interest 9,240 6,330 9,310 2,350 7,880 13,140 9,355 9,355 27,230 39,729 9, Other Income 20,330 22,800 30,250 13,710 19,180 20,570 23,400 23,400 87,090 86,549 19, PBT 99, , , , , , , , , , , Tax 24,280 24,690 25,990 18,560 23,650 31,930 27,466 27,680 93, ,726 24, Rate (%) Adj PAT 75,480 77,040 80,220 81,510 81,960 82,650 97,381 98, , ,128 88, YoY Change (%) Margins (%) Key Assumptions Refining throughput (mmt) GRM (USD/bbl) Petchem EBITDA/tonne (USD/MT) Petchem volumes (mmt) E: MOSL Estimates Exhibit 1: Refining share in overall standalone EBIT remains high at ~57% in 2QFY18 Petrochem Refining E&P Others QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 14 October

3 Exhibit 2: RIL segment-wise performance snapshot (standalone) FY15 FY16 FY17 FY18 2QFY18 (%) In INRb 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q YoY QoQ Segmental Revenues Petchem Refining Oil & Gas Others Total 1,165 1, Segmental EBITDA Petchem Refining Oil & Gas Total EBITDA Margin (%) Petchem Refining Oil & Gas Total Segmental EBIT Petchem Refining Oil & Gas Others Total EBIT Margin (%) Petchem Refining Oil & Gas Total Operating Metrics Refining (USD/bbl) RIL GRM Singapore GRM Premium Refinery Thr' put (mmt) Utilization (%) Petrochemicals Polymer (TMT) 1,082 1,132 1,049 1,037 1,083 1,217 1,183 1,141 1,146 1,186 1,054 1, , Polyester (TMT) Polyester Int. (TMT) 1,086 1,305 1,241 1,245 1,452 1,475 1,725 1,780 1,533 1,739 1,735 1,885 2,091 1, E&P Gross Oil Prodn (tmt) PMT KG-D Total Gross Gas Prodn (mmscmd) PMT KG-D Total Shale production (bcfe) October

4 Key takeaways from analyst meet Refining & marketing: GRM of USD12/bbl GRM has not moved in line with Singapore complex GRM due to lower lightheavy and Brent-Dubai differentials. The company expects refining margins to stay strong, as incremental supply does not appear to catch up with mnbopd of incremental demand every year. Additionally, refineries in Mexico and Venezuela continue to operate at low utilization levels. In bulk diesel, the market share has increased from 4.3% to 7.2% YoY, with a 65% YoY rise in volumes. Seven new ROs were opened during the quarter. Market share in retail diesel stands at 4.2%. 40% of the ROs are COCO, which helps generate better margins even in the current low marketing margin environment. Petrochem: ROGC commissioned PE delta declined 5% QoQ, while PVC delta increased 14% QoQ. PX delta decreased 4% QoQ, while PTA-PX delta increased 13% QoQ. PFY and PSF deltas improved by 20% and 41% QoQ, respectively, while PET delta declined 11% QoQ. Ethane is being cracked at Dahej and Hazira. Nagothane is being readied for cracking of ethane. ROGC has been commissioned fully and the downstream units are being commissioned. Expect full ramp-up in the next days. Petcoke gasifiers are expected to be commissioned by early The company expects delays in the upcoming ethylene crackers in the US, which could support petrochemical deltas. E&P: R-series by 2020 Gas production at KG D6 has declined to 5.4mmscmd. Award of long lead items for development of R-series is being carried out. Production of 12mmscmd is expected to commence in mid FDPs of MJ and satellite fields are expected to be filed in 2HFY18. Shale realization has declined 13% QoQ. Production is down 3% QoQ. Reliance Retail: 14.2m sq. ft. of area With a total of 3,679 retail outlets, revenues stood at INR146bn (+81% YoY, +26.6% QoQ) and EBITDA stood at INR4.4bn (+68% YoY, +11.6% QoQ) in the quarter. A total of 45 stores were added in the quarter. 14 October

5 RJio turns EBITDA positive in 1 st quarter of reporting ARPUs to hover at INR142 as freebies gets reduced Telecom Analyst Aliasgar Shakir - Research analyst (Aliasgar.shakiri@MotilalOswal.com); Hafeez Patel - Research analyst (Hafeez.Patel@motilaloswal.com); RJio reported stellar INR61.5b revenue on the back of INR156 ARPU, coming partly from 1QFY18 recharges. In effect, we believe that recharges form both 1QFY18 and 2QFY18 were accounted on an accrual basis, ARPU would have been ~INR130 for the quarter. Data consumption remained 4-5x of Bharti, while MOUs are 50% higher, with 3.8b GB of data consumption EBITDA at INR14.4b benefited from lower-than-expected opex, coupled with network and employee expense capitalized. In 2HFY18, we expect 42m subscriber addition, taking the overall subscriber base to 181m by March 18 and 205m by March 19, from 139m in 2QFY18, with ARPU estimates of INR156/INR172 in FY18/FY19. We have revised our DCF-based TP to INR245, up 29% from INR190 earlier. The implied EV/EBITDA works out to be 10x on FY21 EBITDA of INR278b. Management s indication of reduced freebies should drive subsequent ARPU accretion. 2QFY18: EBITDA positive in the first quarter RJio reported consolidated revenue of INR72.1b and standalone revenue of INR61.5b v/s our expectation of INR55.1b. To give context, our preview FY18 revenue estimates stood at INR207.5b. RJio remained standalone EBITDA positive in the first quarter of its commercial launch, recording INR14.4b against our estimate of INR11.4b loss (current FY18 estimates at -INR21.1b). EBITDA margin stood at 23.5%. RJio reported net loss of meager INR2.7b, compared to our expectation of INR79.5b. During the quarter, RJio added 15.3m net subscribers, taking the overall subscriber base to 138.6m. RJio reported astonishing ARPU of INR156, despite offering high promotional launch offers. Total wireless data traffic for the quarter stood at 378bGB, about 4-5x of Bharti s data traffic. Average voice traffic stood at 267cr minutes per day, with MOU of 626min, nearly 50% higher than that of Bharti. What led to a healthy ARPU of INR156 The ARPU of INR156 includes three revenue components: a.) In 1QFY18, ARPU of subscribers who paid for promotional plans Summer Surprise and Dhan Dhana Dhan (with a validity of days) were accounted in 2QFY18, as the first three months starting April remained free (first three months of free usage and the commercial operations were not commenced), effectively making the fourth month (July/August) chargeable. b.) The recharge also included the nearly ~50 days of second recharge of all subscribers, as the first recharge expired mid-august. c.) It also includes two months of prime subscription revenues of the one-time INR99 payment. In effect, we believe that if both the recharges (1QFY18 and 2QFY18) were accounted on accrual basis, ARPU should have been about INR130 for the quarter. What led to a healthy EBITDA number Apart from the high revenue base, RJio saw lower-than-expected operating cost due to two factors. First, some part of the network, employee cost was capitalized due to the ongoing capacity building phase. Second, RJio s network and SG&A are much lower than our expectation. Management highlighted that its high proportion of inhouse sites and power & fuel efficiency contributed to lower network cost. SG&A 14 October

6 too appeared significantly lower than peers like Bharti and Idea. RJio indicated that its high proportion of digital recharges helped save distribution cost, while the rest of the cost has seen a tight lid. Key operating metrics million customers (end of quarter) 378b GB data consumption in the quarter 267 crore minutes of VOLTE voice per day 178 crore hours per month of video consumption Data consumption at 10GB per month 626 minutes of VOLTE voice per month 14 hours of video consumption per month ARPU of INR156 Lowest call drop rate at <0.4% Average SIM/user at 1.2x-1.3x, which understates effective ARPU 400m subscribers have ability to pay over ARPU of INR500, and additional 400m have ability to pay ARPU of INR300. Revenue estimates largely intact; revise subscriber, ARPU metrics The current most popular price plan of INR399 for four months may pull down ARPUs to about INR140 (including Prime subscription fees). However, the launch of JioPhone and new price plans (expected to be announced during Diwali) should change the ARPUs. We have factored in 3QFY18E ARPU at INR142, and expect ARPUs to improve 15% to INR163 in 4QFY18, as management indicated that it will continue to curtail freebies. Subsequently, we model ARPU of INR156 and INR172 in FY18E and FY19E, respectively. Subscriber growth should continue to remain high in 3QFY18 on the back of both smartphone and JioPhone subscriber growth. We expect 42m subscriber addition in 2HFY18, reaching 181m overall subscribers by March 18 and 205m subscribers by March 19, from 139m in 2QFY18. This is a significant revision from our previous subscriber and ARPU estimates of 132m/156m and INR215/INR229 for FY18E and FY19E, respectively. This is on the back of incorporating overall subscribers instead of building only active (VLR) subscribers, as management highlighted that all the subscribers are paying instead of only active (VLR) subscribers. Expect EBITDA breakeven to sustain in FY18; Net profit in FY19E We have revised EBITDA estimates for FY18E/FY19E to INR56b/INR143b from earlier estimates of -INR21b/ INR91b. This is on the back of a.) Network, employee and other expenses being capitalized in FY18, which reduces our operating cost estimates by about INR26b. Additionally, we are positively surprised by RJio s discretionary cost (S&D), which is meager 8% of revenues compared to Bharti/Idea, which have about 15% SG&A cost, despite a much higher revenue base. Additionally, a.) low 3% depreciation cost on only capitalized assets (INR1,450b out of INR 2,070b) attributed to the unit cost of production accounting method instead of useful life of the asset b.) Only ~25-30% of interest bearing loans out of total net debt, which offers an effective interest cost of meager 2%, should drive net profitability in FY19E. 14 October

7 Revising TP to INR245 from INR190 earlier; ARPU accretion remains key We have revised our DCF-based TP to INR245, up 29% from INR190 earlier. The implied EV/EBITDA works out to be 10x on FY21 EBITDA of INR278b. RJio has delivered on high subscriber growth, gaining aggressive market share. However, the profitability estimates hover around the expectation of reducing freebies and subsequent ARPU accretion. Management has indicated willingness to progressively shift toward monthly paid subscription, prioritizing revenue market share and profitability against merely subscriber market share. This could also support expansion of the industry revenue pool. Lower competitive intensity from RJio, which is the most aggressive and key price maker in the industry, remains positive for the overall telecom sector. RJio analyst meet takeaways Announced that tariff will be revised soon. ARPUs will move as per new tariff plans. Assuming smartphone value of INR10,000, taking a thumb rule of 5% ARPU, should offer ARPU of INR500. So ARPU accretion will continue. Out of the operating cost, some portion of employee cost is capitalized, which may be in the project development phase and may continue to be capitalized for a few more quarters until the launch of respective business. In the network cost, RJio has not capitalized all the 1,50,000 cell sites. So cell sites which are radiating all the three bands are capitalized, while the cell sites which are radiating only 1 band are not capitalized. However, it is not sizeable. So the network cost may go up in the coming quarter on the back of inclusion of the capitalized network cost as well as addition of fresh sites. S&D is low due to a high proportion of digital subscribers and will continue to remain low. This includes the amount spent on advertisement. Part of the content cost is capitalized but it may not be significant, to the tune of INR1-2b. Avg. tower rent is INR13,000-13,500/ month instead of the industry rent of INR30,000-32,000 due to in-house towers as well as power & fuel efficiency due to high proportion of sites on battery backup. INR 1,450b assets are capitalized toward wireless network assets v/s CWIP of INR620b (of which 65% is toward the wire line segment and may not be capitalized until the commercial launch of wire line business). Telecom capex spent in 2QFY18 was INR70b v/s INR150b in 1QFY18. In 3QFY18, it could be higher; however, it may peak out in the next 2-3 quarters. Thus, net debt will not change significantly beyond the next two quarters. For depreciation accounting, RIL is adopting unit cost of production accounting method. So depreciation is calculated as per capacity utilized, instead of assuming a straight line method. This has led depreciation and amortization cost to remain at meager 3% of the capitalized assets of INR1,450b. All the 139m subscribers have recharged during 2QFY18. VLR subscribers are not an indication of the subscribers that recharge. RJio is presently comfortable with the spectrum footprint in 800mhz, 1800mhz and 2300mhz, and doesn t remain in the spectrum constraint position. Total interest bearing debt is INR490b, of which interest toward INR410b is capitalized. The interest accounted in P&L is toward rest of the INR80b (INR490b 14 October

8 Exhibit 4: Quarterly Earnings Model (INR m) minus INR410b), as well as deferred payment liability of INR220b. The effective interest cost is about ~9.5% on the deferred payment liability and 8% toward the rest of INR80b. The ARPU of INR156 includes three revenue components. a.) In 1QFY18, ARPU of subscribers, which paid for promotional plans Summer Surprise and Dhan Dhana Dhan, are accounted in 2QFY18, as the first three months starting April remained free (commercial operations were not commenced and the recharge offered three months of free usage), effectively making the fourth month (July/August) chargeable. b.) The recharge also included the nearly ~50 days of second recharge of all subscribers, as the first recharge expired mid-august. c.) It also includes two months of prime subscription revenues of the one-time INR99 payment. Y/E March FY17 FY18 FY17 FY18E* Variance 2Q 1Q 2Q 3QE 4QE 2QFY18E (%) Net Revenue ,471 65,945 86, ,13,560 55, YoY Change (%) NA NA NA NA NA Total Expenditure ,053 50,300 60, ,57,994 66, EBITDA ,418 15,645 25, ,565-11,404 NA Margins (%) NA NA NA bps Depreciation ,839 15,177 18, ,532 34, Finance Cost 3 1 6,734 6,865 6, ,596 33, Other Income , ,136 0 NA PBT ,138-5,686 1, ,428-79, Tax NA Rate (%) 35% 35% 35% 0% 0% 35% 0% 0% PAT ,706-5,686 1, ,428-79, Margins (%) NA NA NA YoY Change (%) NA NA NA NA NA NA NA *9 month figures Source: MOSL, Company Exhibit5: ARPU working for 2QFY18 Particulars Prime Members 1QFY18 2QFY18 Total accounted in 2QFY18 Subscribers (m) Amount (INR) GST (%) 15% 15% 18% ARPU (INR, net of GST) Duration days 84 days Avg Start date Charged for period (no of days) Full period 52 Revenues (INR m) ,147 27,350 61,471 ARPU contribution for the quarter (INR) * *3monthly ARPU Exhibit6: ARPU working for 3QFY18E Particulars 3QFY18E Average Subscribers (m) 144 Price Plan 140 Smartphone Revenues (INR m) JioPhone Subscribers (m) 27 ARPU (INR) 140 Jio Phone revenue (INR m) 5754 Total Revenues (INR m) ARPU (INR) 142 Source: MOSL, Company 14 October

9 Exhibit7: ARPU per SIM understates ARPU per customer Particulars Smartphone users Feature phone users Devices in circulation (m) Average SIM/user (nos) ARPU per VLR SIM (INR) Effective ARPU per user (INR) Source: Company Exhibit8: ARPU accretion potential Particulars Mobile users Subscribers in 2009 (m) 392 ARPU in 2009 (INR) 179 Equivalent ARPU in 2017 (INR, adjusted for nominal per capita income) 530 Source: Company Exhibit9: Revenues and EBITDA margin to soar Revenue (INR b) EBITDA margin (%) FY17 FY18E FY19E FY20E Source: MOSL, Company Exhibit10: ARPU to get fillip Subsribers (m) ARPU (INR/month) 184 Exhibit11: Subscriber market share to rise Subsriber additions (m) Subscriber market share FY17 FY18E FY19E FY20E Source: MOSL, Company FY17 FY18E FY19E FY20E Source: TRAI, MOSL, Company Exhibit12: RJio DCF valuation Particulars (INR m) Enterprise Value 28,58,921 Debt 12,78,031 Equity Value 15,80,891 Value Per Share (INR) October

10 Financials and valuations Income Statement (INR Million) Y/E March FY15 FY16 FY17 FY18E* FY19E FY20E Total Income from Operations ,13,560 3,96,992 4,71,078 Change (%) NA NA Tower Rental Cost ,355 1,07,474 1,28,793 Spectrum and License Costs ,720 43,669 51,819 Access and Roaming Charge ,865 61,995 62,502 Employees Cost ,397 19,246 21,825 Other Expenses ,656 22,000 22,000 Total Expenditure , , ,938 % of Sales NA NA NA EBITDA , , ,140 Margin (%) NA NA NA Depreciation ,532 98, ,771 EBIT ,033 43,797 78,369 Int. and Finance Charges ,596 43,088 60,450 Other Income ,136 3,970 4,711 PBT bef. EO Exp ,428 4,679 22,629 EO Items PBT after EO Exp ,428 4,679 22,629 Total Tax ,170 5,657 Tax Rate (%) Minority Interest Reported PAT ,428 3,509 16,972 Adjusted PAT ,428 3,509 16,972 Change (%) NA , Margin (%) NA NA NA *9month figures Balance Sheet (INR Million) Y/E March FY15 FY16 FY17 FY18E FY19E FY20E Equity Share Capital 3,01,250 4,51,250 4,50,000 6,50,000 6,50,000 6,50,000 Total Reserves ,58,644 2,50,216 2,53,726 2,70,697 Net Worth 3,00,742 4,50,503 7,08,644 9,00,216 9,03,726 9,20,697 Total Loans 2,96,929 4,70,078 12,44,490 12,44,490 13,44,490 13,94,490 Capital Employed 5,97,671 9,20,581 19,53,134 21,44,706 22,48,215 23,15,187 Gross Block 10,256 11,825 13,606 22,72,279 24,70,279 26,44,279 Less: Accum. Deprn. 1,398 2,428 3,862 49,394 1,48,205 2,53,976 Net Fixed Assets 8,858 9,397 9,744 22,22,885 23,22,074 23,90,302 Capital WIP 7,22,978 11,83,499 17,79, Total Investments 7,924 8,333 8,731 8,731 8,731 8,731 Curr. Assets, Loans & Adv. 80,392 1,56,037 2,10,634 7,315 87,720 1,16,407 Account Receivables ,553 32,629 38,719 Cash and Bank Balance ,272-4,458 7,026 Loans and Advances 80,121 1,55,884 2,10,366 32,034 59,549 70,662 Curr. Liability & Prov. 2,22,480 4,36,685 55,751 94,225 1,70,310 2,00,253 Account Payables ,479 31,362 35,376 Other Current Liabilities 2,22,298 4,36,286 55,067 53,390 99,248 1,17,769 Provisions ,356 39,699 47,108 Net Current Assets -1,42,088-2,80,648 1,54,883-86,910-82,589-83,846 Appl. of Funds 5,97,671 9,20,581 19,53,134 21,44,706 22,48,215 23,15,187 E: MOSL Estimates 14 October

11 Financials and valuations Ratios Y/E March FY15 FY16 FY17 FY18E FY19E FY20E Basic (INR) EPS Cash EPS BV/Share DPS Payout (%) Valuation (x) FCF per share Return Ratios (%) RoE NA RoCE NA RoIC NA Working Capital Ratios Fixed Asset Turnover (x) Asset Turnover (x) Debtor (Days) Creditor (Days) Leverage Ratio (x) Current Ratio Interest Cover Ratio Net Debt/Equity Cash Flow Statement (INR Million) Y/E March FY15 FY16 FY17 FY18E FY19E FY20E OP/(Loss) before Tax ,428 4,679 22,629 Depreciation ,532 98,811 1,05,771 Interest & Finance Charges ,461 39,118 55,740 Direct Taxes Paid ,170-5,657 (Inc)/Dec in WC -27,827-43,454-33,637 1,99,253 33,493 12,741 CF from Operations -28,009-43,633-34,057 2,54,818 1,74,932 1,91,224 Others CF from Operating incl EO -28,017-43,659-34,058 2,54,818 1,74,932 1,91,224 (Inc)/Dec in FA -95,351-1,76,334-3,85,398-4,78,897-1,98,000-1,74,000 Free Cash Flow -1,23,368-2,19,992-4,19,456-2,24,079-23,068 17,224 (Pur)/Sale of Investments -5, Others ,136 3,970 4,711 CF from Investments -1,00,619-1,76,502-3,85,579-4,76,762-1,94,030-1,69,289 Issue of Shares 70,530 1,50, ,00, Inc/(Dec) in Debt 71,513 1,02,861 4,78, ,00,000 50,000 Interest Paid -13,453-32,740-58,188-20,596-43,088-60,450 Dividend Paid Others CF from Fin. Activity 1,28,590 2,20,121 4,19,849 1,79,404 56,912-10,450 Inc/Dec of Cash ,540 37,814 11,484 Opening Balance ,272-4,458 Closing Balance ,272-4,458 7, October

12 REFINING: GRMs below estimate due to lower L-H differentials GRM at USD12/bbl vs benchmark GRM of USD8.3/bbl Exhibit 3: RIL s premium over benchmark stood at USD3.7/bbl in 2QFY18 RIL's GRM premium over SG Brent less Dubai Arab L-H QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 4: Refining EBIT up +10.7% YoY and +2.5% QoQ Refining EBIT (INRb) EBIT Margins (%) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 5: 2QFY18 GRM at USD12/bbl; premium of USD3.7/bbl Singapore GRM Premium / (Disc) RIL GRM QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 14 October

13 Exhibit 6: Refinery throughput up YoY to 18.1mmt, utilization at 117% Refinery Thr' put (mmt) Utilization (%) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 7: RIL expects strong demand growth to lead limited capacity supply growth Source: Company 14 October

14 PETCHEM: Best ever earnings driven by favorable margins and strong volume growth EBIT increased +42% YoY and +23% QoQ; EBIT share at 43% Exhibit 8: EBIT up 42% YoY and +23% QoQ; margins increased YoY/QoQ to 18.3% Petchem EBIT (INRb) EBIT Margins (%) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 9: Key polymer spreads declined YoY/QoQ ; POY/PSF spreads down 2.4%/flat YoY in 2QFY18 (INR/kg) 80 PE PP PVC POY PSF QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 10: Petchem volume increases due to new project commissioning Polymer (mmt) Polyester (mmt) Polyester Interm. (mmt) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 14 October

15 E&P: KG-D6 produciton decline continues Domestic E&P profitability remains volatile Exhibit 11: E&P profitability remains volatile 31 E&P EBIT (INRb) (27) 0 0 (2) (20) (11) (13) (1) (1) (2) (1) (40) 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Exhibit 12: KG-D6 gross production averaged 5.5mmscmd in 2QFY18 KG-D6 Gross Oil (TMT) KG-D6 Gross Gas (mmscmd) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Shale Gas performance improved on the back of improving prices RIL s shale gas revenues stood at USD80m (v/s USD89m in 2QFY17), while EBITDA stood at USD13m (v/s USD23m in 2QFY17). RIL s production share in shale JV s stood at 33.5bcfe (v/s 41.4bcfe in 2QFY17). Lower production volumes due to natural decline and temporary shut-in of wells. Blended realization stood at USD2.8/mcfe (v/s USD2.6/mcfe in 2QFY17). Exhibit 13: Shale gas revenues and EBITDA declined YoY/QoQ Revenues (USDm) EBITDA (USDm) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 14 October

16 Exhibit 14: RIL production down 19% YoY and 3.4% QoQ (RIL Production Share bcfe) Shale gas vol, net (bcfe) QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 14 October

17 Organized Retail: Sales at INR146b; EBIT at INR3.3b 2QFY18 revenues up 81% YoY; presence in 750 cities with 3,679 stores Exhibit 15: Reliance retail has opened 45 stores in 2QFY18, increasing presence increased to 750 cities Organized Retail 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 No of stores (No.) 1,723 2,006 2,285 2,621 2,747 2,857 3,043 3,245 3,383 3,442 3,553 3,616 3,634 3,679 Addition No of cities Avg stores per city Exhibit 16: Reliance opened 45 new stores in 2QFY18 1,723 2,006 2,285 2,621 2,747 2,857 3,043 3,245 3,383 3,442 3,553 3,676 3,634 3, ,196 1,298 1,379 1,537 1,862 1,917 1,986 1,996 2,000 2, QFY15 Value and others Digital Brand, Jewellery, Fashion & Lifestyle Total Stores 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 Valuation and view The company is coming to an end of its capex cycle in the standalone business. We believe that with strong risk management, better yield management and crude optimization, the company would clock GRM of USD11.5/bbl, going forward. Commissioning of downstream units of ROGC would boost the petchem performance further. We are increasing our petchem delta estimate due to delays in US petchem expansions. While E&P still appears to be a laggard in the near term, some light appears on the horizon with the award of long lead items for the development of R-series. RJio appears to have surprised with positive EBIT in the first quarter itself this would remain key to stock performance. We raise our RJio valuation to INR245/share from INR190/share. On FY19E basis, the stock trades at 13.7x adj. SA EPS of INR64 and EV/EBITDA of 9.2x. Our SOTP-based fair value stands at INR1,005/share, implying an upside of 15%. We thus upgrade our rating to Buy. 14 October

18 Exhibit 17: RIL: Key assumptions Key Metrics FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exchange Rate (INR/USD) Refining Capacity (mmt) Production (mmt) Capacity Utilization (%) 110% 110% 112% 113% 114% 113% 113% GRM (USD/bbl) Singapore GRM Premium/(disc) RIL GRM E&P Gas Production (mmscmd) Oil Production (kbd) Pricing Brent Oil (USD/bbl) Wellhead Gas Price (USD/mmbtu) Exhibit 18: RIL: Segmental EBITDA break-up (INRb) Segmental EBITDA (INRb) FY14 FY15 FY16 FY17E FY18E FY19E FY20E Refining Petchem E&P Total Segmental EBITDA share (%) Refining Petrochemicals E&P Total Exhibit 19: RIL: Sum of the parts valuation (September 2018 Target) Sum of the parts (on FY19-20 basis) Remarks/Methodology Core business Refining 347 7x FY19-20 EBITDA Petchem 324 7x FY19-20 EBITDA E&P 33 KG D6 5 DCF PMT 6 DCF NEC-25 2 USD 5/boe CBM 4 USD 5/boe Shale (23) 7x EV/EBITDA FY19 KG basin exploratory upside 39 USD 5/boe Investments RGTIL 3 Book value Reliance Retail 49.7x FY19 sales RJio 245 As per our telecom analyst Total 1,001 Net debt / (cash) (3) Target price 1, October

19 Reliance Industries: Story in charts Exhibit 20: RIL s earnings growth momentum on a recovery track (1.2) PAT (INRb) PAT - YoY (%) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E 8.9 Exhibit 21: Also return ratios are expected to gradually recover RoCE (%) RoE (%) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exhibit 22: Refinery throughput to remain at 70mmt in FY18/19; GRM to stabilize Refinery Thr' put (mmt) RIL GRM (USD/bbl) FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exhibit 23: Expect petchem EBITDA contribution to increase going forward, followed by refining Refining Petchem E&P Total FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E 14 October

20 Reliance Industries: Story in charts Exhibit 24: Segmental EBITDA break-up (%) - E&P a dampener, refining and petchem outshine FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exhibit 26: RIL refining margins improved in FY16 (USD/bbl) after staying flat in recent years Singapore GRM Premium/(disc) RIL GRM Refining Petrochemicals E&P Exhibit 25: Expect E&P production to decline; though new policy can boost long-term production (mmscmd) Gas Production (mmscmd) FY10 FY12 FY14 FY16 FY18E FY20E Exhibit 27: We expect petchem EBITDA to improve in FY18/19 Petchem EBITDA (INRb) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exhibit 28: Dividend Payout stabilized in recent years (%) Dividend payout (%) FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Exhibit 29: RIL 1Yr Fwd P/E Chart (last 10 years) P/E (x) Avg (x) Max (x) 38.0 Min (x) +1SD -1SD Sep-07 Dec-08 Mar-10 Jun Sep Dec Mar-15 Jun Sep October

21 Financials and valuations Standalone - Income Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Total Income from Operations 3,602,970 3,901,170 3,290,760 2,331,580 2,420,250 3,145,837 3,723,331 3,827,661 Change (%) Total Expenditure 3,295,100 3,592,400 2,974,740 1,938,110 1,987,690 2,622,632 3,142,372 3,239,471 % of Sales EBITDA 307, , , , , , , ,190 Margin (%) Depreciation 94,650 87,890 84,880 85,900 84, , , ,246 EBIT 213, , , , , , , ,944 Int. and Finance Charges 30,360 32,060 23,670 25,620 27,230 37,418 30,375 31,500 Other Income 79,980 89,360 87,210 78,210 87,090 86, , ,301 PBT bef. EO Exp. 262, , , , , , , ,745 EO Items PBT after EO Exp. 262, , , , , , , ,745 Total Tax 52,810 58,340 67,490 86,320 93, , , ,764 Tax Rate (%) Reported PAT 210, , , , , , , ,981 Adjusted PAT 210, , , , , , , ,981 Change (%) Margin (%) Standalone - Balance Sheet (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Equity Share Capital 32,540 32,320 32,360 32,400 32,510 65,020 65,020 65,020 Total Reserves 1,767,410 1,938,420 2,129,230 2,507,580 2,850,620 3,126,831 3,482,938 3,870,578 Net Worth 1,800,200 1,970,910 2,161,760 2,539,980 2,883,130 3,191,851 3,547,958 3,935,598 Total Loans 724, , , ,200 1,013, , , ,000 Deferred Tax Liabilities 121, , , , , , , ,660 Capital Employed 2,646,180 2,947,870 3,264,700 3,700,650 4,143,820 4,089,511 4,495,618 4,883,258 Gross Block 2,131,540 2,225,650 2,360,620 2,622,320 2,584,480 3,557,650 3,707,650 3,757,650 Less: Accum. Deprn. 1,034,060 1,131,590 1,214,990 1,146,890 1,053,180 1,362,651 1,482,529 1,620,775 Net Fixed Assets 1,097,480 1,094,060 1,145,630 1,475,430 1,531,300 2,194,999 2,225,121 2,136,875 Capital WIP 191, , ,530 1,109,050 1,341, , , ,868 Total Investments 525, ,620 1,125,730 1,572,500 1,924,500 1,924,500 1,924,500 1,924,500 Curr. Assets, Loans&Adv. 1,371,380 1,269, , , , ,661 1,792,303 2,325,754 Inventory 427, , , , , , , ,824 Account Receivables 118, ,640 46,610 34,950 54,720 68,950 81,607 83,894 Cash and Bank Balance 495, , ,710 68,920 17, ,042 1,033,508 1,545,121 Loans and Advances 329, , , , , , , ,916 Curr. Liability & Prov. 538, , ,150 1,116,090 1,323,640 1,762,516 2,082,174 2,139,740 Account Payables 495, , ,570 1,093,730 1,289,780 1,684,962 1,994,277 2,044,915 Provisions 43,480 41,670 62,580 22,360 33,860 77,554 87,897 94,825 Net Current Assets 832, , , , , , , ,015 Appl. of Funds 2,646,180 2,947,870 3,264,700 3,700,650 4,143,820 4,089,511 4,495,618 4,883,258 E: MOSL Estimates 14 October

22 Financials and valuations Ratios Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Basic (INR) EPS Cash EPS BV/Share DPS Payout (%) Valuation (x) P/E Cash P/E P/BV EV/Sales EV/EBITDA Dividend Yield (%) FCF per share Return Ratios (%) RoE RoCE RoIC Working Capital Ratios Fixed Asset Turnover (x) Asset Turnover (x) Inventory (Days) Debtor (Days) Creditor (Days) Leverage Ratio (x) Current Ratio Interest Cover Ratio Net Debt/Equity Standalone - Cash Flow Statement (INR Million) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E OP/(Loss) before Tax 262, , , , , , , ,745 Depreciation 94,650 87,890 84,880 85,900 84, , , ,246 Direct Taxes Paid -52,810-58,340-67,490-86,320-93, , , ,764 (Inc)/Dec in WC 59,460-51, , , , , ,482 35,727 CF from Operations 364, , , , , , , ,954 Others , ,700 10, CF from Operating incl EO 364, , ,140 1,031, , , , ,954 (Inc)/Dec in FA -168, , , , , ,500-50,000-50,000 Free Cash Flow 196,330-54,150 14, , , , , ,954 (Pur)/Sale of Investments 14, , , , , CF from Investments -153, , ,930-1,213, , ,500-50,000-50,000 Issue of Shares -40,040-16, ,380 70, Inc/(Dec) in Debt -41, ,580 36,600 31,790 89, ,030 50,000 0 Dividend Paid -30,750-32,680-35,590-37,000-41,738-52,039-60,026-65,342 CF from Fin. Activity -111, , , , ,069-10,026-65,342 Inc/Dec of Cash 99, , ,530-46,790-51, , , ,613 Opening Balance 395, , , ,710 68,920 17, ,042 1,033,508 Closing Balance 495, , ,710 68,920 17, ,042 1,033,508 1,545, October

23 Corporate profile Company description Reliance Industries Ltd (RIL), a Fortune 500 company, is India's largest private sector entity, with a turnover of USD66.8b and net profit of USD3.9b. Over the years, RIL has grown through backward integration in energy chain (textiles, petchem, refining and E &P) and is now moving into new areas like organized retail and BWA. It operates one of the largest refining capacity of 1.24mmbbl/d at a single location and is the largest producer of polyester fibre and yarn. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Sep-17 Jun-17 Sep-16 Promoter DII FII Others Note: FII Includes depository receipts Source: Capitaline Exhibit 3: Top holders Holder Name % Holding LIC of India 8.1 Europacific Growth Fund 3.2 Exhibit 4: Top management Name Designation Mukesh D Ambani Chairman & Managing Director Hital R Meswani Executive Director Nikhil Meswani Executive Director Pawan Kumar Kapil Executive Director PMS Prasad Executive Director K Sethuraman Company Secretary Exhibit 5: Directors Name Nita M Ambani Ashok Misra Dipak C Jain R A Mashelkar Y P Trivedi Source: Capitaline Name Adil Zainulbhai D V Kapur M L Bhakta Raminder Singh Gujral Maheswar S Sahu Source: Capitaline *Independent Exhibit 6: Auditors Name Bandyopadhyaya Bhaumik & Co Chaturvedi & Shah Deloitte Haskins & Sells LLP Dilip M Malkar & Co Diwanji & Associates Type Cost Auditor Statutory Statutory Cost Auditor Cost Auditor Source: Capitaline Exhibit 7: MOSL forecast v/s consensus EPS (INR) MOSL forecast Consensus forecast Variation (%) FY FY FY Source: Bloomberg 14 October

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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai ; Tel No.: ; Correspondence Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad (West), Mumbai Tel No: Compliance Officer: Neeraj Agarwal, Id: na@motilaloswal.com, Contact No.: Registration details of group entities.: MOSL: NSE (Cash): INB ; NSE (F&O): INF ; NSE (CD): INE ; BSE (Cash): INB ; BSE(F&O): INF ; BSE(CD); MSE(Cash): INB ; MSE(F&O): INF ; MSE(CD): INE ; CDSL: IN-DP ; NSDL: IN-DP-NSDL ; Research Analyst: INH AMFI: ARN Investment Adviser: INA Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP ) offers PMS and Mutual Funds products. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.: INP ) offers wealth management solutions. *Motilal Oswal Securities Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs, Insurance and IPO products. * Motilal Oswal Commodities Broker Pvt. Ltd. offers Commodities Products. * Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. offers Real Estate products. * Motilal Oswal Private Equity Investment Advisors Pvt. Ltd. offers Private Equity products 14 October