RELIANCE INDUSTRIES LIMITED October 18, 2017 Current Price: `874.25 STOCK DATA BSE Code 500325 NSE Symbol RELIANCE Reuters RELI.BO Bloomberg RIL IN VALUE PARAMETERS Price (Rs) 874.25 52 W H/L(Rs) 891.70/466.00 Mkt. Cap.(Rs Cr) 553644.06 Latest Equity(Subscribed) 6332.79 Latest Reserve (cons.) 256795.67 Latest EPS (cons.) -Unit Curr. 50.38 Latest P/E Ratio -cons 17.35 Latest Bookvalue (cons.) -Unit Curr. 430.73 Latest P/BV - cons 2.03 Dividend Yield -% 0.59 Face Value 10 SHARE HOLDING PATTERN (%) Description as on % of Holding 30/09/2017 Foreign 26.38 Institutions 11.29 Govt Holding 0.14 Non Promoter Corp. Hold. 2.69 Promoters 46.21 Public & Others 13.29 Consolidated Financial Results Qtr Ending Qtr Ending In Cr. Sept. 17 Sept. 16 VAR % Net Sales 95085.00 81651.00 16 OPM% 16.40 13.70 OP 15565.00 11164.00 39 Other Income 2317.00 2393.00-3 PBIDT 17882.00 13557.00 32 Interest 2272.00 883.00 157 PBDT 15610.00 12674.00 23 Depreciation 4287.00 2774.00 55 PBT before EO 11323.00 9900.00 14 EO 0.00 0.00 PBT after EO 11323.00 9900.00 14 Tax 3240.00 2703.00 20 PAT 8083.00 7197.00 12 Share of profit/(loss) of associates 14.00-18.00 LP Minority interest 12.00 30.00-60 Consolidate Net Profit 8109.00 7209.00 12 EPS (Rs) 12.80 22.23 Reliance Industries Limited (RIL) reported less-than-expected profit in the July- September quarter as its refining margin lagged estimates. RIL has reported 12% increase in consolidated net profit to Rs 8109 crore in Q2FY'18 compared to Q2FY'17 which was higher than the estimates while net sales were up 16% to Rs 95085 crore. Increase in revenue is primarily on account of increase in prices and volumes in refining, petrochemical and retail businesses. Exports (including deemed exports) from India refining and petrochemical operations were higher by 10.2% at Rs 41,560 crore as against Rs 37,717 crore in the corresponding period of the previous year due to higher volumes and product prices. GRM during the quarter stood at $ 12/bbl - outperforming Singapore benchmark by $ 3.7/bbl as against $ 10.1/bbl in the previous year quarter and quarterly crude throughput was 18.1 MMT compared to 18 MMT in Q2FY'17. KG-D6 production stood at 5.4 MMSCMD in Q2FY'18 compared to 7.7 MMSCMD in Q2FY'17. Further, the consolidated revenues reflect the commencement of commercial operations of RJIL's Wireless Telecommunication Network during the quarter. Reliance Jio Infocomm reported net sales of Rs 6147.06 crore during Q2FY18. EBITDA during the quarter was Rs 1443 crore with EBITDA margin of 23.5%. Net loss for the period was Rs 270.59 crore. Subscriber base as on 30th September 2017 was 13.86 crore. Net subscriber addition during the quarter was 1.53 crore. ARPU (Average revenue per user) during the quarter was Rs 156.4 per subscriber per month. Total wireless data traffic during the quarter was 378 crore GB. Average voice traffic during the quarter at 267 crore minutes per day Operating profit of the company before other income and depreciation increased 39.4% to Rs 15,565 crore from Rs 11,164 crore in the corresponding period of the previous year. Strong operating performance was driven by the refining, petrochemicals, retail businesses and positive contribution from digital services starting from this quarter. 1
Consolidated Segment Results Particulars Qtr Ending Sept.17 Qtr Ending Sept.16 % to total Var. (%) Revenue: Petrochemicals 27999.00 22422.00 23 25 Refining 69766.00 60527.00 56 15 Oil & Gas 1503.00 1327.00 1 13 Organized retail 14646.00 8079.00 12 81 Digital Service 7213.00 200.00 6 3507 Others 2459.00 2947.00-17 Total 123586.00 95502.00 98 29 Less: Inter Segment Revenues 22417.00 13851.00 62 Less: GST recovered 6084.00 0.00 Net Revenue from Operation 95085.00 81651.00 16 PBIT Petrochemicals 4960.00 3417.00 41 45 Refining 6621.00 5975.00 55 11 Oil & Gas -272.00-491.00-2 -45 Organized retail 334.00 162.00 3 106 Digital Service 261.00-6.00 2-4450 Others 142.00 126.00 13 PBIT 12046.00 9183.00 99 31 Segment Assets Petrochemicals 115969.00 98875.00 15 17 Refining 190736.00 172195.00 25 11 Oil & Gas 42173.00 40284.00 6 5 Organized retail 15802.00 10968.00 2 44 Digital Service 228032.00 147677.00 Others 19736.00 18670.00 3 6 Unallocated 139576.00 148318.00 19-6 Total Segment Assets 752024.00 636987.00 70 18 Segment Liabilities Petrochemicals 57309.00 49752.00 8 15 Refining 140214.00 107177.00 19 31 Oil & Gas 58692.00 67519.00 8-13 Organized retail 8989.00 5777.00 1 56 Digital Service 139564.00 108987.00 19 28 Others 2861.00 3377.00-15 Unallocated 344395.00 294398.00 46 17 Total Segment Liabilities 752024.00 636987.00 100 18 Other expenditure increased by 35.8% to Rs 12,323 crore as against Rs 9,073 crore in corresponding period of the previous year primarily due to network expenses and access charges pertaining to the digital services business post commencement of commercial operations. Depreciation (including depletion and amortization) was Rs 4,287 crore as compared to Rs 2,774 crore in corresponding period of the previous year. The increase was mainly on account of commencement of commercial operations of RJIL's Wireless Telecommunication Network. 2
Finance cost was at Rs 2,272 crore as against Rs 883 crore in corresponding period of the previous year primarily on account of finance cost related to digital services business. Profit after tax was higher by 12.5% at Rs 8,109 crore as against Rs 7,209 crore in the corresponding period of the previous year. Outstanding debt as on 30th September 2017 was Rs 214,145 crore compared to Rs 196,601 crore as on 31st March 2017. Cash and cash equivalents as on 30th September 2017 were at Rs 77,014 crore compared to Rs 77,226 crore as on 31st March 2017. The capital expenditure for the quarter ended 30th September 2017 was Rs 15,653 crore including exchange rate difference capitalization. Capital expenditure was principally on account of ongoing projects in the petrochemicals and refining business at Jamnagar and digital services business. Segment wise revenue from the Refining and Marketing segment increased by 15.3% Y-o-Y to Rs 69,766 crore. Segment EBIT increased by 10.8% Y-o-Y to Rs 6,621 crore, aided by higher volumes and strong transportation fuel cracks. Gross Refining Margins (GRM) for 2Q FY18 stood at nine-year high of $ 12.0/bbl as against $ 10.1/bbl in 2Q FY17. RIL's GRM outperformed Singapore complex margins by $ 3.7/bbl. 2Q FY18, revenue from the Petrochemicals segment increased 24.9% Y-o-Y to Rs 27,999 crore due to higher volumes in the polyester chain and firm prices. Petrochemicals segment EBIT was at a record level of Rs 4,960 crore supported by strong volume growth, higher margins and improved product mix with ethane cracking stabilizing at Dahej and Hazira. EBIT margins during the quarter expanded to 17.7%, highest in the last ten years. 2Q FY18, revenue for the Oil & Gas segment increased 13.3% Y-o-Y to Rs 1,503 crore due to commencement of CBM production. Revenues also include Rs 198 crore received towards settlement of various long pending commercial issues relating to sale of crude oil of Panna- Mukta Field. Segment EBIT was loss at Rs 272 crore as against loss of Rs 491 crore in the corresponding period of the previous year. The segment performance continues to remain impacted by declining volume and weak prices. Domestic production was lower at 20.6 BCFe, down 12% Y-o-Y whereas production in US Shale operations declined by 19% to 33.5 BCFe. Retail segment revenue for 2Q FY18 grew by 81.3% Y-o-Y to Rs 14,646 crore. The increase in turnover was led by growth in digital, fashion & lifestyle and petroleum products. The business delivered strong PBDIT of Rs 444 crore in 2Q FY18 as against Rs 264 crore in the corresponding period of the previous year. During the quarter, Reliance Retail added 45 stores across various store concepts and strengthened its distribution network for consumer electronics. Extending its omni-channel presence, Ajio.com now has physical presence across 363 Trends stores. As on 30th September 2017, Reliance Retail operated 3,679 stores across 750 cities with an area of over 14.2 million square feet. Network18 Media & Investments reported 2QFY18 consolidated revenue of Rs 327 crore (down 13% Y-o-Y) primarily due to reduced revenues from TV shopping business. EBIT loss reduced to Rs 45 crore with cost-control measures across verticals amidst a weak advertising environment. Entertainment cluster performance was boosted by a top-grossing movie release and outperformance of niche channels. News viewership continued to grow led by regional channels; however earnings were muted due to gestation losses of launches last year. Business Environment update Domestic Oil and Gas Operation 2Q FY18 revenues for domestic E&P operations was at Rs 760 crore up 8.4% Y-o-Y due to commencement of CBM production. Revenues also include Rs 198 crore received towards settlement of various long pending commercial issues relating to sale of crude oil of Panna- Mukta Field. This was offset by lower gas price realization and declining volumes in KGD6 and Panna-Mukta blocks. Consequently, segment registered an EBIT of Rs (96) crore. KG-D6 block produced 0.18 MMBBL of crude oil and 17.7 BCF of natural gas in 2Q FY18, a 3
reduction of 31% and 30% respectively on a Y-o-Y basis. Condensate production in 2Q FY18 was at 0.01 MMBBL. Fall in oil and gas production was mainly on account of natural decline coupled with water and sand ingress resulting in shut-in of wells. Panna-Mukta fields produced 1.40 MMBBL of crude oil and 17.0 BCF of natural gas in 2Q FY18, a reduction of 10% in crude oil and increase of 12% in natural gas on Y-o-Y basis. Lower production was mainly on account of natural field decline and temporary shut-in of wells due to asset integrity issues. During the quarter, the CBM field produced 1.63 BCF of gas as compared to 0.30 BCF in 1Q FY18. The current production rate is 0.72 MMSCMD with gradual ramp up in progress. Oil & Gas (US Shale) During 2Q CY17 (consolidated with 2Q FY18) both gas and oil prices softened. This in combination with lower Q-o-Q production impacted financial performance. On a Y-o-Y basis, prices are better, but lower volumes impacted financial performance. US Shale Gas industry saw signs of stabilizations. In the two shale plays where Reliance is present, the Marcellus region witnessed stable rig activity compared to last quarter, while rig count went down marginally in Eagle Ford as focus shifted to increasing activity in Permian. Commodity markets had mixed trend during the quarter with steady WTI oil prices at $ 48.2/bbl, while HH gas prices average 6% lower at $ 3.00/mmbtu. NGL realizations improved on strong domestic demand for Propane. Marcellus gas differentials widened Q-o-Q due to delay in the start of new take-away capacities. On a Y-o-Y basis, both WTI and HH Gas averaged 7% higher. Production was lower by 6% and 13% in Chevron and Carrizo JVs respectively. Refining and Marketing Gross Refining Margins (GRM) for 2Q FY18 stood at $ 12.0/bbl as against $ 10.1/bbl in 2Q FY17. RIL's GRM outperformed Singapore complex margins by $ 3.7/bbl. Improved product cracks led by demand growth and supply disruptions helped in improving refining margin despite narrow light-heavy differential for crude oil and widening of Brent-Dubai differential. Global oil demand growth is estimated at 1.6 mb/d in 2017, revised upward by 0.2 mb/d on Q-o- Q basis. Strong demand growth resulted in higher global refinery utilization rates during the quarter. Average refinery utilization rate was at 86.3% in North America, 89.2% in Europe and 85.4% in Asia. Refinery utilization in North America remained at elevated levels but were significantly impacted by disruptions due to hurricane Harvey. Utilization in Europe were seasonally higher in the quarter supported by disruptions in North America and unplanned outages. Utilization in Asia was marginally lower Q-o-Q on account of capacity addition in China. RIL's exports of refined products from India were at $ 5.2 billion during the 2Q FY18 as compared to $ 4.8 billion in 2Q FY17. In terms of volume, exports of refined products were 11.2 MMT during 2Q FY18 as compared to 11.1 MMT in 2Q FY17. During 2Q FY18, the benchmark Singapore complex margin averaged $ 8.3/ bbl as compared to $ 6.4/ bbl in 1Q FY18 and $ 5.1/ bbl in 2Q FY17. Margins were higher due to improvement in product cracks across the board, receding product stocks in key regions and supply disruptions in Americas. Singapore gasoil cracks averaged $ 13.9/bbl during 2Q FY18 as against $ 11.4/ bbl in 1Q FY18 and $ 11.0 /bbl in 2Q FY17. On a Q-o-Q basis, despite seasonally lower Indian gasoil demand, exports from India were also relatively lower owing to refinery maintenance. Additionally, supply disruption in US Gulf Coast, firm demand in Europe/CIS and lower inventory levels in Asia supported gasoil cracks. Singapore gasoline cracks averaged $ 16.1/ bbl during 2Q FY18 as against $ 14.2/ bbl in 1Q FY18 and $ 11.6/ bbl in 2Q FY17. Refinery outages in the USGC and Mexico supported gasoline cracks globally. Asian naphtha cracks averaged $ (-0.2/ bbl) in 2Q FY18 as compared to $ (-1.3/ bbl) in 1Q FY18 4
and $ (-1.9/ bbl) in 2Q FY17. Naphtha cracks remained at elevated levels on the back of strong gasoline margins, firm petrochemical feedstock demand and expensive LPG economics. Fuel oil cracks averaged $ (-2.5/ bbl) in 2Q FY18 as compared to $(-2.9/ bbl) in 1Q FY18 and $ (- 5.1/bbl) in 2Q FY17. On a Q-o-Q basis, the improvement in cracks was supported by firm bunker fuel demand in Singapore as well constrained heavy oil supply globally. Chinese Y-o-Y fuel oil demand growth was strong during the quarter. Arab Light Arab Heavy crude differential at $1.5/bbl was lower from $ 2.2/bbl in the previous quarter. OPEC cuts have resulted in lower heavy crude availability. Higher light crude supply from Libya and Nigeria during the quarter as well as sustained resilience of shale oil production in the U.S. narrowed light-heavy spread. Petrochemical Business Polymer & Cracker On Q-o-Q basis, crude oil and naphtha prices remained firm due to continuation of OPEC's production cut and supply disruptions. Ethylene prices were up by 9% due to higher feedstock prices and tight supply. Propylene prices also gained 6% amid strong demand. Polymer prices were stable to high during the quarter. PP and PVC prices gained by 4% and 2% respectively during the quarter, whereas HDPE and LLDPE prices were stable. PP margins remained firm ($ 298/MT, up 1% Q-o-Q) during the quarter on account of supply concern and firm feedstock prices. PE margins were marginally low ($ 669/MT, down 5% Q-o-Q) due to strengthening of naphtha prices. PVC margins were at 5 years high ($ 602/MT, up 14% Q-o-Q) due to drop in EDC prices in line with availability of low price Chlorine caused by surge in Caustic price. While downstream businesses were aligning themselves to the new GST tax regime, July'17 witnessed slowdown in business transactions and end product movement. However, from August'17 onwards the demand revived ahead of festive season. On Y-o-Y basis, domestic polymer demand was higher by 3% during 2Q FY18. RIL's polymer production was stable on Y-o-Y basis at 1.18 MMT. However, it was up by 21% on Q-o-Q as there was a planned shutdown at Nagothane and Hazira in 1Q FY18. Polyester Chain PX markets remained stable, supported by healthy energy prices and strong downstream markets. PX-Naphtha delta narrowed ($ 343/MT, down 4% Q-o-Q) due to strength in naphtha prices. PTA markets were healthy on account of robust downstream demand and tight supplies owing to planned turnarounds in the region. PTA prices gained 3% Q-o-Q supporting PTA PX delta to surge 13% Q-o-Q to $132/MT. PTA delta continue to remain above the 5 year average level. MEG prices firmed up during the quarter backed by robust demand, tight supplies and speculative activity. MEG delta over naphtha strengthened 27% Q-o-Q to $572/MT; highest since October 2011. Regional polyester demand remained healthy during the quarter amidst low inventory and healthy off-take from downstream during peak textile season. Polyester producers maintained high plant utilization rates in order to maintain adequate inventory. Operating rates of polyester fibre and yarn plants in China were in the range of 84-92% during the quarter. Polyester filament yarn and PSF prices were firm by 11% and 14% respectively Q-o-Q. PFY delta widened 20% Q-o-Q to $294/MT. PSF delta surged 48% Q-o-Q to $204/MT. Global PET markets were healthy owing to firm seasonal demand from beverage segment and tight supplies due to disruption in few plant operations globally. PET prices gained 5% Q-o-Q, however delta softened 10% Q-o-Q at $144/MT due to higher strength in raw material prices. PET deltas however continue to remain healthy at around 5 year average level. PET demand witnessed 11% increase Q-o-Q on account of strong seasonal demand. Domestic polyester operation witnessed slow down at the beginning of the quarter owing to 5
implementation of GST regime. Downstream textile units witnessed increased demand with the beginning of festive season during the quarter. PSF demand was up 3% Q-o-Q amidst stable operating rates and improved margins with stable feedstock values. Filament markets were mixed with demand improving towards the end of the quarter; demand growth was largely stable on Q-o-Q. Fibre intermediate production during 2Q FY18 increased sharply to 2.2 MMT, primarily due to new PX plant at Jamnagar. Polyester production was stable on Y-o-Y at 0.6 MMT. Reliance has started operations of its new ROGC cracker, MEG and LLDPE plants at Jamnagar Currently, these plants are under stabilization. Organized Retail Revenues for 2Q FY18 grew by 81.3% Y-o-Y to Rs 14,646 crore, up from Rs 8,079 crore. PBDIT for the period grew by 68.2% Y-o-Y to Rs 444 crore, up from Rs 264 crore. Reliance Retail witnessed strong performance across the board during the quarter despite macro-economic head winds. Anticipating tax revisions as a result of GST implementation, consumers' preponed discretionary spend on many categories. There were supply disruptions for a short period as manufacturers were clearing old inventory. Advance inventory planning and strong vendor relationships helped tackle stock-outs during the GST implementation period mitigating revenue loss. Reliance Retail re-commissioned 7 petro retail outlets during the quarter. All petro outlets are fully integrated with digital modes of payment through JIO Money facilitating seamless customer experience. Reliance Retail added 45 stores during 2Q FY18 and operates 3,679 stores across 750 cities with an area of over 14.20 million sq. ft. as on 30th September, 2017. Management Comments Commenting on the results, Mukesh D. Ambani, Chairman and Managing Director, Reliance Industries Limited said: "Our Company reported another quarter of robust performance. I am delighted to share that this includes the financial performance of Reliance Jio which had a positive EBIT contribution in its first quarter of commercial operations. The results also reflect strong underlying fundamentals of our refining and petrochemicals businesses. Sustained demand growth coupled with supply disruptions further tightened demand-supply balances globally during the quarter. The benefits of optimizing our business through new projects are beginning to emerge. The structural strength in energy and materials business environment augurs well for our new capacities which are coming on-line this year. Our retail business has delivered broad based, sustainable and profitable growth through improved operational excellence. The world is transforming, turning digital and India is not going to be left behind. India is ready to go digital, move from voice to data and Jio is creating the foundation of data for the next generation business. The rapid uptake of Jio services reflects the latent need of the society. We are confident that Jio will bring significant benefits to the Indian economy and the Indian customers and will take India to a much higher pedestal. We are focussed on providing multilayered digital services on top of the basic connectivity service to optimally utilise our world class infrastructure. The strong financial results of Jio demonstrates the robust business model of Jio and the significant efficiencies that the Company has built through its investment in the latest 4G technology and right business strategy. As always, the Group has demonstrated excellence in execution, vision and commercial acumen." 6
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