BUY CMP 889.00 Target Price 978.00 RELIANCE INDUSTRIES LTD. Result Update (PARENT BASIS): Q2 FY15 JANUARY 3 rd 2015 ISIN: INE002A01018 Index Details Stock Data Sector Oil & Gas BSE Code 500325 Face Value 10.00 52wk. High / Low (Rs.) 1142.50/794.00 Volume (2wk. Avg.) 494000 Market Cap (Rs. in mn.) 2875026.00 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 3901170.00 4156696.64 4389471.65 EBITDA 398130.00 427482.19 454993.55 Net Profit 219840.00 236926.03 253479.01 EPS 68.02 73.26 78.38 P/E 13.07 12.13 11.34 Shareholding Pattern (%) 1 Year Comparative Graph RELIANCE INDUSTRIES LTD S&P BSE SENSEX Highlights Reliance Industries Ltd Net profit rose by 4.59% in Q2 FY15 and recorded at Rs. 57420.00 mn compared to Rs. 54900.00 mn in the same period previous year. The company s Net sales stood at Rs. 964860.00 mn in Sept quarter of FY15 against Rs. 1037580.00 mn in the corresponding quarter of the previous year. In Q2 FY15, EBDITA ramps up by 4.70% y-o-y and stood at Rs.103750.00 mn compared to Rs.99090.00 mn in Q2 FY14. During the quarter, Profit before Tax rose by 7.55% y-o-y to Rs. 73900.00 million from Rs.68710.00 million in the corresponding quarter of the previous year. Reliance Industries Limited ( RIL ) India and Shandong Ruyi Science and Technology Group Co. Ltd, China ( Ruyi ) (through its wholly owned subsidiary), have executed definitive agreements for a joint venture in textiles. Reliance signs shipping agreements with one of the world s largest and reputed shipping companies MITSUI O.S.K. LINES, LTD (MOL) for transporting Liquefied Ethane from North America to India. Reliance Jio Infocomm Limited ( RJIL ) has signed Syndicated Term Loan Facilities aggregating to US$1.5 Billion (the Facility ). Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 6% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Reliance Industries Ltd 889.00 2875026.00 68.02 13.07 1.46 95.00 Indian Oil Corporation Ltd 331.00 803652.30 41.40 8.00 1.22 87.00 HPCL Ltd 551.00 186820.70 111.38 4.95 1.24 155.00 ONGC Ltd 343.55 2934533.10 26.00 13.19 2.15 190.00
COMPANY PROFILE Reliance Industries, the largest private sector company, is the first Indian company to feature in the Fortune Global 500 list. Reliance Industries is in the business of oil and gas exploration, refining and petrochemicals. The crude oil and gas produced is the raw material for refining and petrochemicals segment. Reliance is also a major importer of oil for its refining business. The major products under refining are LPG gas (Reliance gas), naphtha, gasoline, aviation turbine fuel, kerosene oil, high speed diesel etc. Petrochemical segment produces polyester, fibre intermediates, plastics and chemicals. Reliance Industries went public in 1977. Rampant growth of company is credited to its backward vertical integration in polyester, fiber intermediates, plastics, petrochemicals, petroleum refining and oil and gas exploration and production. Though it started with textiles, Reliance has transformed itself into a fully integrated energy and materials value chain. At present, Reliance is a global leader in production of polyester yarn and fiber and it is also one of the major producers of petrochemical products. Reliance Industries Limited operates worldclass manufacturing facilities across the country at Allahabad, Barabanki, Dahej, Hazira, Hoshiarpur, Jamnagar, Nagothane, Nagpur, Naroda, Patalganga, Silvassa and Vadodara. The equity shares of the Reliance are among the most liquid and actively traded shares on the Indian Stock Exchanges. RIL shares consistently ranks among the top few frequently traded shares, both in terms of the number of shares traded, as well as value. As per Newsweek s Green Rankings 2014, RIL is India s greenest and most environment-friendly company, ranking 185th among the world s largest 500 companies. QUARTERLY HIGHLIGHTS (PARENT BASIS) Q2 FY15, Net profit of the company grew by 4.59% from 54900.00 mn to Rs. 57420.00 in Q2 FY15. In Sept quarter of FY15, Net sales stood at Rs. 964860.00 mn against Rs. 1037580.00 mn in the Sept quarter of FY14. Thus the net profit margin grew by 66 basis points in the Q2 FY15. EBDITA grew by 4.70% to Rs. 103750.00 mn. EBDITA margin grew by 120 basis points. Profit before Tax rose at even higher rate of 7.55% to Rs. 73900.00 million from Rs. 68710.00 million in the corresponding quarter of the previous year. Rs. In Million Sep- 14 Sep-13 Change Net Sales 964860.00 1037580.00 (7.01) Net Profit 57420.00 54900.00 4.59 Net Profit Margin 5.95% 5.29% 66 BP EPS 17.76 16.99 4.49 EBDITA 103750.00 99090.00 4.70 EBDITA Margin 10.75% 9.55% 120 BP Other Income 21400.00 20600.00 3.88 PBT 73900.00 68710.00 7.55
Break up of Expenditure Rs. In Mn Q2 FY15 Q2 FY14 CHNG % Cost of materials 788510.00 883650.00-11% Other Expenses 22270.00 22330.00 0% Depreciation 9320.00 8080.00 15% Emply benefits exp 73080.00 68050.00 7% Stock in trade 17360.00 1160.00 1397% Segment Revenue (Q2 FY15) Rs. Mn Q2 FY15 Q2 FY14 CHNG % Petrochemicals 249320.00 248920.00 0 Refining 917810.00 974560.00 (6) Oil and Gas 13800.00 14640.00 (6) Others 2210.00 3300.00 (33) Updates Reliance Jio Infocomm Limited ( RJIL ) has signed Syndicated Term Loan Facilities aggregating to US$1.5 Billion (the Facility ). The Facility is guaranteed by Reliance Industries Limited ( RIL ) and will be used to refinance the syndicated term loan facilities aggregating to US$1.5 Billion tied up by RJIL in 2010. Reliance Industries Limited ( RIL ) India and Shandong Ruyi Science and Technology Group Co. Ltd, China ( Ruyi ) (through its wholly owned subsidiary), have executed definitive agreements for a joint venture in textiles. Reliance signs shipping agreements with one of the world s largest and reputed shipping companies MITSUI O.S.K. LINES, LTD (MOL) for transporting Liquefied Ethane from North America to India.
The Consolidated Results for the Half Year ended 30 th Sept, 2014 RIL achieved a record half yearly performance in terms of both revenue and net profit. Turnover of Rs. 2213010.00 mn ($ 35.8 billion) for the half year ended 30th September 2014, registered an increase of 1.0%, as compared to Rs. 219,0540.00 mn in the corresponding period of the previous year. PBDIT and Net profit registered a growth of 6.4% and 7.4% respectively, and were at Rs. 228950.00 mn ($ 3.7 billion) and Rs. 119290.00 mn ($ 1.9 billion) for the half-year period. First half of FY 14-15 revenue from the Refining and Marketing segment increased by 0.1% Y-o-Y to Rs. 2016710.00 mn ($ 32.7 billion), while EBIT was up by 23.7% Y-o-Y at Rs. 76580.00 mn. The robust growth in EBIT was driven by higher gross refining margins (GRM) despite lower crude throughput and weak product cracks. GRMs during first half of FY 14-15 were at $8.5/bbl as compared to $8.0/bbl in first half of FY 13-14. RIL processed 34.0 MMT of crude in first half of FY 14-15, achieving operating rate of nearly 110%. RIL s premium over regional benchmark widened due to favourable crude costs, reaching a four-year high during the second quarter. A combination of wide Arab Light Arab Heavy and narrow Brent-Dubai differential was a key factor for lower crude cost during the second quarter. First half of FY 14-15 revenue from the Petrochemicals segment increased by 3.4% Y-o-Y to Rs. 520490.00 mn ($ 8.4 billion). EBIT for the period was at Rs. 42240.00 mn, an increase of 2.1% on a Y-o-Y basis. Overall domestic demand witnessed an improving trend during first half of FY 14-15 with polymer demand growing at 5% and polyester demand growth at 3%. The polymer chain margins were significantly higher especially during the second quarter, led by large planned and unplanned outages globally. The oil and gas business achieved a turnover of Rs. 61800.00 mn and an EBIT of Rs. 1,8600.00 mn, with Y-o- Y growth of 19.4% and 29% respectively. Gas production from the KG-D6 fields continued to decline due to geological complexity and natural decline. In the polyester chain, fibre intermediate margins remained weak during the first quarter, however margins rebounded sharply in the second quarter on the back of operating rate rationalisation. The company is continuing with appraisal programme of the D55 (MJ discovery). Drilling of a third appraisal well MJ-A3 is under way to appraise southern part of Central Segment of MJ discovery area. The evaluation of the second appraisal well was completed, with no hydrocarbon bearing zone encountered in the Eastern segment of MJ discovery area. Significant progress was also made in the Phase 1 of development activities in two CBM blocks, Sohagpur East and Sohagpur West. Around 60% of Phase 1 activities have been completed and we are likely to start production of gas from second half of 2015. RIL s shale business continues to witness strong production growth across all the JVs. Production during first half of FY 14-15 was at 98.4 BCFe, up 32% on Y-o-Y basis. Revenue from the US shale business grew by 26%
to $ 514 million and EBITDA grew 38% to $ 403 million during first half of FY 14-15. Cumulative investment across all JVs is now at $7.7 billion. A substantial part of Pioneer and Carrizo JV capex are met through cash from respective JV operations. Chevron JV continued to account for most of the ongoing capex and funding needs. Continuing its growth momentum, Reliance Retail crossed three significant milestones during the period; 1) surpassing turnover of Rs. 40000.00 mn in a quarter, 2) operating over 2,000 stores and 3) presence in over 150 cities. Despite persistent inflation and slow consumption growth, first half of FY 14-15 revenue for Reliance Retail grew by 17.3% Y-o-Y to Rs. 81660.00 mn. PBDIT for the retail business more than doubled to Rs. 3570.00 mn from Rs. 1650.00 mn in the same period last year. All format sectors grew through store additions as well as consistent like for like growth ranging up to 21%. RIL s subsidiary, Reliance Jio Infocomm Limited ( RJIL ), plans to provide reliable fast internet connectivity and rich digital services on a Pan India basis. RJIL has finalized the key vendor and supplier partnerships that are required for the launch of services, and is making rapid progress in building the critical infrastructure needed to launch its services. RJIL has signed agreements with various telecom infrastructure providers to widen access to telecom tower/fibre infrastructure to expedite the rollout of its 4G services. RIL s acquisition of control in Network 18 Media & Investments Limited through Independent Media Trust including its subsidiary TV18 Broadcast Limited will differentiate Reliance s 4G business by providing a unique amalgamation at the intersect of telecom, web and digital commerce via a suite of premier digital properties. Outstanding debt as on 30th September 2014 was Rs. 1420840.00 mn ($ 23.0 billion), while cash and cash equivalents were at Rs. 834560.00 mn ($ 13.5 billion). The net addition to fixed assets for the half year ended 30th September 2014 was Rs. 448950.00 mn ($ 7.3 billion) including exchange rate difference capitalization. Capital expenditure was principally on account of ongoing expansion projects in the petrochemicals and refining business, US Shale and 4G businesses.
FINANCIAL STATEMENTS & ESTIMATIONS (PARENT BASIS) (A*- Actual, E* -Estimations& Rs. In Millions) Balance Sheet as on 31 st March, 2013-2016E Reliance Industries Ltd. FY-13A FY-14A FY-15E FY-16E SOURCES OF FUNDS Shareholder's Funds Share Capital 32290.00 32320.00 32340.00 32340.00 Share application money pending allotment 250.00 170.00 0.00 0.00 Reserves and Surplus 1767660.00 1938420.00 2175346.03 2414634.10 Total Net worth (a) 1800200.00 1970910.00 2207686.03 2446974.10 Non Current Liabilities Long term borrowing 430120.00 627110.00 708634.30 779497.73 Deferred Tax Liabilities 121930.00 122150.00 128257.50 133387.80 Total Non Current liabilities (b) 552050.00 749260.00 836891.80 912885.53 Current Liabilities Short term borrowings 115110.00 227700.00 141174.00 91763.10 Trade payables 457870.00 578620.00 682771.60 781773.48 Other Current liabilities 216400.00 107670.00 141047.70 162204.86 Short term Provisions 43480.00 41670.00 21668.40 11917.62 Total current liabilities (c) 832860.00 955660.00 986661.70 1047659.06 Total Liabilities (a + b + c) 3185110.00 3675830.00 4031239.53 4407518.69 Non-Current Assets Fixed Assets 1. Tangible assets 829620.00 804240.00 820324.80 841653.24 2. Intangible assets 267860.00 289820.00 310107.40 324372.34 3. Capital Work in Progress 135250.00 326730.00 483560.40 626210.72 4. Intangible assets under development 55910.00 90430.00 132027.80 165034.75 Total Fixed Assets 1288640.00 1511220.00 1746020.40 1957271.05 Non-current investments 241430.00 526920.00 565956.73 593595.91 Long Term loans and advances 215280.00 284360.00 341232.00 402653.76 Total Non Current Assets (d) 1745350.00 2322500.00 2653209.13 2953520.72 Current Assets Current Investment 283660.00 333700.00 383755.00 420211.73 Inventories 427290.00 429320.00 476545.20 500372.46 Trade receivables 118800.00 106640.00 113038.40 116429.55 Cash and Bank Balances 495470.00 366240.00 274680.00 280173.60 Short-terms loans & advances 109740.00 112770.00 124047.00 130249.35 Other current assets 4800.00 4660.00 5964.80 6561.28 Total Current Assets (e) 1439760.00 1353330.00 1378030.40 1453997.97 Total Assets (d+e) 3185110.00 3675830.00 4031239.53 4407518.69
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs. mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 3602970.00 3901170.00 4156696.64 4389471.65 Other Income 79980.00 89360.00 90789.76 95056.88 Total Income 3682950.00 3990530.00 4247486.40 4484528.53 Expenditure -3295100.00-3592400.00-3820004.21-4029534.97 Operating Profit 387850.00 398130.00 427482.19 454993.55 Interest -30360.00-32060.00-28212.80-30187.70 Gross profit 357490.00 366070.00 399269.39 424805.86 Depreciation -94650.00-87890.00-93163.40-96889.94 Profit Before Tax 262840.00 278180.00 306105.99 327915.92 Tax -52810.00-58340.00-69179.95-74436.91 Profit After Tax 210030.00 219840.00 236926.03 253479.01 Equity capital 32290.00 32320.00 32340.00 32340.00 Reserves 1757110.00 1938420.00 2175346.03 2414634.10 Face value 10.00 10.00 10.00 10.00 EPS 65.04 68.02 73.26 78.38 Quarterly Profit & Loss Statement for the period of 31 st Mar 2014 to 31 st Dec, 2014E Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E Description 3m 3m 3m 3m Net sales 951930.00 963510.00 964860.00 1042048.80 Other income 20360.00 20460.00 21400.00 23540.00 Total Income 972290.00 983970.00 986260.00 1065588.80 Expenditure -868620.00-888210.00-882510.00-960768.99 Operating profit 103670.00 95760.00 103750.00 104819.81 Interest -7990.00-3240.00-7580.00-7883.20 Gross profit 95680.00 92520.00 96170.00 96936.61 Depreciation -22750.00-20240.00-22270.00-21690.98 Profit Before Tax 72930.00 72280.00 73900.00 75245.63 Tax -16620.00-15790.00-16480.00-17005.51 Profit After Tax 56310.00 56490.00 57420.00 58240.11 Equity capital 32320.00 32330.00 32340.00 32340.00 Face value 10.00 10.00 10.00 10.00 EPS 17.42 17.47 17.76 18.01
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 65.04 68.02 73.26 78.38 EBITDA Margin (%) 10.76 10.21 10.28 10.37 PBT Margin (%) 7.30 7.13 7.36 7.47 PAT Margin (%) 5.83 5.64 5.70 5.77 P/E Ratio (x) 13.67 13.07 12.13 11.34 ROE (%) 11.74 11.16 10.73 10.36 ROCE (%) 20.31 19.32 17.03 16.63 Debt Equity Ratio 0.30 0.43 0.38 0.36 EV/EBITDA (x) 6.90 6.83 7.17 6.69 Book Value (Rs.) 554.17 609.76 682.65 756.64 P/BV 1.60 1.46 1.30 1.17 Charts
INDUSTRY OVERVIEW Oil and Gas sector in India is dominated by public sector companies. The major players are ONGC, Oil India, Reliance Industries, Crain Energy, GAIL, Bharat Petroleum, Indian Oil, Bharat Petroleum and Hindustan Petroleum. Reliance Industries and Crain Energy are the two major private players in oil and gas sector. The oil and gas sector consists of three segments upstream, midstream and downstream. The upstream segment primarily comprises of companies that are engaged in exploration and production activities, while the midstream segment comprises of players in storage and transportation, and the downstream segment comprises of players that are engaged in refining, processing and marketing of petroleum products. The oil and gas sector is regulated at two levels, policy level and regulatory level. At the policy level, the oil and gas sector is regulated by the finance ministry and planning commission. At the regulatory level, the sector is administered by the Ministry of Petroleum and Natural Gas, Directorate General for Hydrocarbons and Petroleum and Natural Gas Regulatory Board. During FY 2013 14, the total consumption of petroleum products in India was 158.2 million tonnes (MT). The consumption stood at 14.2 MT in March 2014, according to data released by the Petroleum Planning and Analysis Cell, Ministry of Petroleum and Natural Gas. The share of fuels in the country's exports surged from 5.59 per cent in 2003 04 to 20.05 per cent during 2013 14. Total exports of fuel products stood at US$ 62.69 billion in value terms during FY 2013 14. The country had total reserves of 1354.76 billion cubic meters (BCM) of natural gas and 758.27 million metric tonnes (MMT) of crude oil at the end of FY 2012 13. The use of shale gas can be the first step in the road to economic freedom, as per Mr Moily. The minister feels that the country could do something similar to the US, which became a net exporter of energy from a net importer of energy, on the back of shale gas and oil. By 2015 16, India s demand for gas is expected to touch 124 MTPA, as per projections of India s Petroleum and Natural Gas Ministry.
OUTLOOK AND CONCLUSION At the current market price of Rs. 889.00, the stock P/E ratio is at 12.13 x FY15E and 11.34 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.73.26 and Rs.78.38 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 7% and 6% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 7.17 x for FY15E and 6.69 x for FY16E. Price to Book Value of the stock is expected to be at 1.30 x and 1.17 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs.978.00 for Medium to Long term investment. Disclaimer: This document is prepared by our research analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
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