Reliance Industries - Motilal Oswal

BSE Sensex
S&P CNX
18,745 5,689
Bloomberg
RIL IN
Equity Shares (m) 3,228.0
M. Cap. (INR b)/(USD b) 2,598/47.7
52-Week Range (INR) 955/674
1, 6, 12 Rel. Perf. (%) -1/-1/-2
Financials & Valuation (INR b)
Y/E March 2013E 2014E 2015E
Sales 3,603 3,653 3,608
EBITDA 308 302 323
Adj. PAT 210 218 232
Adj. EPS (INR) 71.9 74.2 78.7
EPS Gr. (%) 4.8 3.9 6.3
BV/Sh.(INR) 619 682 747
RoE (%) 12.3 11.7 11.3
RoCE (%) 11.7 11.3 11.2
Payout (%) 16.1 16.4 16.2
Valuations
P/E (x) 12.4 11.9 11.2
P/BV (x) 1.3 1.2 1.1
EV/EBITDA (x) 8.6 8.7 8.1
Div. Yield (%) 1.1 1.2 1.2
17 April 2013
4QFY13 Results Update | Sector: Oil & Gas
Reliance Industries
CMP: INR805 TP: INR867 Neutral
Reliance Industries' (RIL) EBIT for 4QFY13 was INR59.2b (+23% YoY, -5% QoQ),
lower than our estimate of INR65.8b, primarily due to lower than expected
petchem EBIT. However, PAT was in-line at INR55.9b (+32% YoY, +2% QoQ; our
estimate was INR55b), led by lower depreciation at INR22.4b (v/s our estimate
of INR23.4b) and higher other income at INR22.4b (v/s our estimate of INR18.8b).
• Refining - GRM in-line; EBIT impacted by higher opex/lower throughput:
GRM was USD10.1/bbl (+33% YoY, +5% QoQ; v/s estimate of USD10/bbl).
Refining EBIT at INR35.2b (v/s estimate of INR37.7b) was impacted by 8%
QoQ decline in throughput to 16.1mmt, led by CDU maintenance shutdown
and higher opex.
• Petchem - Below estimates led by lower volumes: Petchem EBIT was INR19b,
down 13% YoY and 2% QoQ, despite higher QoQ individual product spreads.
EBIT margin was 8.6% against 8.8% in 3QFY13. The management indicated
that lower petchem EBIT is due to lower volumes. We believe it could also be
due to adverse sales mix.
• E&P - meaningful upside 3-4 years away: KG-D6 production averaged
19.2mmscmd (v/s 24mmscmd in 3QFY13) and production is expected to
stabilize post the workover well drilling / booster compressors, expected in
early FY15. RIL, along with BP has proposed development of additional 4tcf of
gas with an investment of USD5b. If government approvals are received on
time, these new development projects (R-series, satellite fields, etc) will
start production in 3-4 years. Further, NEC- 25 production start is now expected
in mid-2019.
Valuation and view: In FY14/FY15, we model (a) GRM at USD9/bbl, (b) KG-D6 gas
price at USD4.2/7/mmbtu, and (c) KG-D6 gas volumes at 13/15mmscmd. While
turnaround in the Retail business (EBITDA of INR780m in FY13 v/s loss of INR3.4b
in FY12) is positive, any meaningful earnings addition is expected only in FY16/
17, when its large projects (pet coke gasification/off-gas cracker) commission.
Core business outlook (90% of earnings) remains subdued and we expect RoE to
hover at ~12%. The stock trades at 11.2x FY15E adjusted EPS and at an EV of 8.1x
FY15E EBITDA. Our SOTP-based target price is INR867. Maintain Neutral.
Harshad Borawake (HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
Kunal Gupta (Kunal.Gupta@MotilalOswal.com); +91 22 3982 5445
Investors are advised to refer through disclosures made at the end of the Research Report.

Reliance Industries
Segment-wise performance
FY12 FY13 4QFY13 (%)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q YoY QoQ
Segmental Revenues (INR b)
Petochem 184 211 198 214 218 221 221 222 3.5 0.5
Refining 737 681 767 762 854 839 866 779 2.2 -10.1
Oil & Gas 39 36 28 26 25 23 19 16 -38.8 -16.9
Others 2 5 2 3 2 2 2 4 38.1 104.0
Total 962 932 996 1,005 1,100 1,084 1,108 1,020 1.5 -7.9
Segmental EBIT
Petrochem 22 24 22 22 18 17 19 19 -12.8 -2.2
Refining 32 31 17 17 22 35 36 35 107.5 -2.6
Oil & Gas 15 15 13 10 10 9 6 5 -51.6 -22.0
Others 0 0 0 0 0 0 1 0 585.7 -37.7
Total 69 70 51 48 49 62 62 59 22.7 -4.8
Segmental EBIT Margin (%)
Petrochemicals 12 11 11 10 8 8 9 9 -15.8 -2.6
Refining 4 5 2 2 3 4 4 5 103.1 8.3
Oil & Gas 38 43 46 36 39 38 31 29 -21.0 -6.2
Others 3 2 4 3 0 5 44 13 396.6 -69.4
Total 7 8 5 5 4 6 6 6 20.9 3.5
Operating Metrics
Refining (USD/bbl)
RIL GRM 10.3 10.1 6.8 7.6 7.6 9.5 9.6 10.1 32.9 5.2
Singapore GRM 8.6 9.1 7.9 7.5 6.7 9.1 6.5 8.7 16.0 33.8
Premium 1.7 1.0 -1.1 0.1 0.9 0.4 3.1 1.4 n.a. -54.8
Refinery Thr’ put (mmt) 17.0 17.1 17.2 16.3 17.3 17.6 17.5 16.1 -1.2 -8.0
Utilization (%) 109.7 110.3 111.0 105.2 111.6 113.5 112.9 103.9 -1.2 -8.0
Petrochemicals
Total producton (mmt) 5.5 5.7 5.5 5.5 5.6 5.5 5.5 5.4 -1.8 -1.8
Polymer (‘000 MT) 1,091 1,134 1,146 1,084 1,101 1,101 1,098 1,100 1.5 0.2
Polyester (‘000 MT) 411 414 415 422 415 420 365 430 1.9 17.8
Polyester Interm. (‘000 MT) 1,212 1,188 1,200 1,200 1,203 1,197 1,200 1,170 -2.5 -2.5
E&P
Gross Oil Production (kbd)
PMT 33.0 30.4 29.3 26.8 26.4 25.0 23.9 20.4 -23.8 -14.5
Yemen 4.3 4.3 4.3 3.9 5.0 5.0 - - n.a. n.a.
KG-D6 11.7 15.2 15.2 13.2 10.4 10.3 7.6 7.8 -41.0 2.2
Total 49.0 49.9 48.9 43.9 41.8 40.3 31.5 28.2 -35.7 -10.5
Gross Gas Production (mmscmd)
PMT 11.8 11.5 10.9 10.8 9.9 9.3 8.9 7.6 -29.3 -14.7
KG-D6 48.6 45.3 41.0 35.5 33.0 28.5 24.0 19.2 -45.9 -20.1
Total 60.4 56.8 51.9 46.2 42.9 37.8 32.9 26.8 -42.0 -18.6
Gross Oil +Gas (mmboe) 40.3 38.2 35.2 31.4 29.2 26.1 22.4 18.5 -41.2 -17.6
Net Gas Production (mmscmd) 30.0 26.1 18.3 16.2 14.9 13.2 11.3 9.2 -43.3 -19.0
RIL's share in KG-D6 at 60% from Sept-12 (earlier 90%)
Source: Company, MOSL
17 April 2013 2

Reliance Industries
Other highlights
• D,D&A was down 9% QoQ to INR22b, driven by lower E&P depletion, led by lower
production.
• Other income was higher QoQ at INR22b due to higher cash balance and profit on
sale of investments.
• Net interest outgo was INR7b (v/s INR7.7b in 4QFY12, INR8.1b in 3QFY13) post
interest capitalization of INR2.2b (v/s INR0.7b in 3QFY13).
• Effective tax rate was 21.5% (v/s 22% in 4QFY12 and 19.7% in 3QFY13).
• Gross debt stood at INR724b and cash/cash equivalents at INR830b, translating
into net cash of INR105b (v/s net cash of INR87b in 3QFY13) on a standalone basis.
However, on consolidated basis, the company has net debt of INR240b (gross
debt: INR1,070b; cash: INR830b).
Update on new projects
• Polyester expansion: Capacity to start commissioning from FY14.
• Petcoke gasification: Procurement of long lead items is ongoing; could be
completed in 36 months. Management expects GRM addition of USD2.5/bbl.
• Off-gas cracker: Technology suppliers, project management and EPC contractors
finalized; likely to commission by 2016/17.
Reconciling standalone and consolidated EBITDA (INR b)
FY12 FY13 Abs. Chg. % Remarks
RIL (Standalone EBITDA) 398.1 387.9 (10.3) Decline in E&P production and weakness
in petchems, partially offset by higher GRM’s
RHUSA (Shale Gas) 9.4 21.1 11.7 Average Production increased 93% YoY from 5.9 mmscmd in
4QFY12 to 11.9 mmscmd in 4QFY13
Recron Malaysia 1.5 (0.9) (2.4) Swing in profitability is surprising with reference to the
headline polyester margins
GAPCO 2.5 1.4 (1.1)
Reliance Retail (3.4) 0.8 4.2 Crossed INR100b in sales, turned EBITDA
positive for the first time
Others (1.1) (1.1) 0.0
Total 407.0 409.1 2.1
* Includes interest income Source: Company, MOSL
Profit on sale of investments boosts
E&P EBIT share continues to decline (%) other income in 4QFY13 Net cash of INR105b on balance sheet
Source: Company, MOSL
17 April 2013 3

Reliance Industries
Refining: GRM at USD10.1/bbl; premium to Singapore at USD1.4/bbl;
Throughput impacted by shutdown
• Refinery EBIT contribution to overall EBIT increased to 59% in 4QFY13, led by higher
GRM (v/s 35% in 4QFY12 and 58% in 3QFY13).
• RIL's 4QFY13 GRM at USD10.1/bbl was marginally higher than our estimate of
USD10/bbl and was up 33% YoY and 5% QoQ. RIL reported USD1.4/bbl premium to
Singapore GRM (v/s premium of USD0.1/bbl in 4QFY12 and USD3.1/bbl in 3QFY13).
The QoQ premium decline was partly led by higher LNG costs.
• YoY increase in GRM was led by (1) higher auto fuel cracks, and (2) higher Arab
light-heavy differential (USD4.5/bbl in 4QFY13 against USD4/bbl in 3QFY13).
• Refinery utilization at 104% was significantly higher than global peers. Throughput
was down QoQ at 16.1mmt (v/s our estimate of 16.5mmt) due to planned 3-week
shutdown of 1 CDU during 4QFY13 in its SEZ refinery.
• Apart from the CDU shutdown impact refining EBIT was impacted by higher opex
at USD3.5/bbl in 4QFY13 v/s USD3.1/bbl in 3QFY13. RIL increased CDU capacity by
~3% (~1.5mmt) through debottlenecking.
• PDVSA, Venezuela will supply 300-400kbpd of crude to RIL's refinery (24-32% of
capacity) as per the agreement.
• Refining outlook: We expect GRMs to remain range-bound in the medium term
due to (a) weak global oil demand (0.8mmbbl/d in 2013), and (b) additional refining
capacity of >1mmbbl/d coming up with almost nil refinery closures in the last 8-9
months. Resistance by European governments to shut down uneconomical
refineries has contributed to the lower overall utilization, impacting margins.
While the medium-term GRM outlook remains subdued, we expect GRMs to be
volatile (occasional spurts) due to occasional bunching up of shutdowns. We model
GRM of USD9/bbl in FY14/15 for RIL.
Refining EBIT lower QoQ 4QFY13 GRM at USD10.1/bbl; Refinery utilization lower due to CDU
due to shutdown premium of USD1.4/bbl maintenance shutdown
Source: Company, MOSL
17 April 2013 4

Reliance Industries
Meaningful jump in gasoline cracks Arab light-heavy spread up Auto-fuel cracks decline towards second
on QoQ basis (USD/bbl) USD0.5/bbl QoQ (USD/bbl) half of March 2013 (USD/bbl)
Source: Company, MOSL
Petchem: EBIT below estimate despite higher headline spreads; expect
margins to improve in medium term
• RIL's 4QFY13 petchem EBIT margin was 8.6% (v/s 10.2%/8.8% in 4QFY12/3QFY13).
• While overall domestic market demand was up, RIL's sales volumes were lower
QoQ. On a YoY basis, domestic polymer demand was up 12% (13% in PP, 10% in
HDPE/LLDPE, 19% in LDPE and 14% in PVC), while polyester demand was up 5%
(4.4% in POY, 4.2% in PSF and 9.8% in PET).
• Commissioning of new polyester capacities over the next 2-3 years will add to
earnings. The off-gas cracker commissioning in 2016/17 will be a big earnings
booster for the company.
• Petchem outlook: We believe polymer margins have bottomed out but anticipate
slow recovery. In the medium term, we expect margins to improve, as demand
growth is likely to be higher than incremental capacity additions.
Petchem EBIT margin down,
Individual petchem spreads
partly due to adverse sales mix improve QoQ (INR/kg) Petchem volumes decline QoQ (mmt)
Source: Company, MOSL
E&P: KG-D6 production at 19mmscmd in 4QFY13 v/s 24mmscmd in 3QFY13;
Next production growth 3-4 years away; government approvals critical
• RIL's 4QFY13 E&P EBIT contribution was the lowest in the last 15 quarters, led by
lower KG-D6 volumes. EBIT was INR4.6b (v/s INR9.5b in 4QFY12 and INR5.9b in
3QFY13). The significant QoQ decline was led by lower KG-D6 production and higher
D,D&A charge. RIL's E&P EBIT is now down to pre-KG-D6 levels.
17 April 2013 5

Reliance Industries
• KG-D6 gross volumes averaged 19mmsmcd in 4QFY13 (v/s 36mmscmd in 4QFY12
and 24mmscmd in 3QFY13).
• RIL is pursuing various plans with DGH to stem the current production decline as
well as to start production from new fields.
• Shale gas volumes encouraging: RIL's share of production stood at 31bcfe in 4QFY13
(+12% QoQ and +99% YoY). Its revenue share (not accounted in standalone) was
USD193m (v/s USD173m in 3QFY13) and EBITDA share was USD155m (v/s USD123m
in 3QFY13) as against its cumulative investment of USD5.7b.
Work program update
• RIL, along with BP has proposed development of additional 4tcf of gas with an
investment of USD5b. If government approvals are received on time, these new
development projects (R-series, satellite fields, etc) will start production in 3-4
years.
• Clarity on gas price will also be critical for additional investment decisions.
• Further, NEC-25 production start is now expected in mid-2019.
• According to media articles, the MJ1 well in KG-D6 (drilling ongoing) has found
hydrocarbons. The management is likely to issue an update on the same within a
month.
Update on RIL's key E&P blocks: DGH approval/gas pricing critical for future development
Block
Update / Planned Work Program
KG-D6
Base management of current Fields
- D1/D3 RFDP submitted for workover wells; side track campaigns
and MEG upgrade
- D26 RFDP approved; to drill new well to maximize gas recovery
- Compressor to maximize recovery from all the above
(D1, D3, D26) fields
New projects to exploit new reserves
- Development plan submitted for R-Series
- DoC review for D29, D30, D31 (Satellite) being pursued with MC
Well MJ1 targeting upsides in existing production area underway
NEC-25 (NEC-OSN-97/2) - Integrated block development plan for D-32, D-40, D-9 and D-10
discoveries submitted to MC. Has proposed phased development
- First gas by mid-2019 subject to timely approvals
CY-D6 (CY-PR-DWN-2001/3) - Appraisal program for discovery D53 reviewed by MC.
- 3D acquisition completed and appraisal well drilled;
results under evaluation
CY-D5 (CY-DWN-2001/2 ) - DoC for D35 (A1) discovery submitted in March 2010;
await DGH approval.
- Plan to drill additional exploratory location in FY14
KG-V-D3 (KG-DWN-2003/1) - Revised DoC for D39 / D41 submitted in April 2012;
await DGH approval.
- Phase 1 valid up to Dec’14; new well locations are being identified
CB-10 (CB-ONN-2003/1) - DoC for 8 discoveries submitted August 2011; await DGH approval
CBM blocks
Sonhat (North): Relinquished block due to poor prospectivity
Sohagpur East & West: Expect first gas in FY15 subject to gas price
approval; Extension for development phase granted
up to Oct-Dec-14
*MC: Management Committee
Source: Company, MOSL
17 April 2013 6

Reliance Industries
KG-D6 current and planned project schematic
Source: Company
Lower production led to lower E&P KG-D6 gross production averaged Net hydrocarbon production at
EBIT margin (%) 19.2mmscmd in 4QFY13 9.2mmboe
Shale gas capex at USD470m; RIL's production share More wells drilled with focus on
USD5.7b till date (including carry) increased 12% QoQ liquid-rich area
17 April 2013 7

Reliance Industries
Organized retail: Turns EBITDA positive; sales up 42% YoY to INR108b
• RIL has invested ~INR100b till date in the Retail business. Of its total Retail sales,
~65% is contributed by 13m loyalty customers.
• Its FY13 revenue grew 42% to INR108b (v/s INR73.6b in FY12), driven by same store
sales (SSS) growth of 7-18% across formats.
• Retail EBITDA was positive in FY13 at INR780m v/s loss of INR3.4b in FY12.
• RIL currently operates 1,466 stores (184 new stores in FY13) in 129 cities and has an
area of 9msf.
RIL's Retail business presence across India
Strong sales growth traction across categories
Source: Company
17 April 2013 8

Reliance Industries
Standalone and Consolidated Profit & Loss
Standalone
Consolidated
FY11 FY12 FY13 FY11 FY12 FY13
P&L (INR b)
Net Sales 2,482 3,299 3,603 2,658 3,585 3,971
EBITDA 381 336 308 390 348 330
Depreciation 136 114 95 141 124 112
EBIT 245 222 213 248 224 218
Interest Expenses 23 27 30 24 29 35
Other Income 31 62 80 26 61 78
Exceptional items - - - -9 -3 -
PBT 252 258 263 241 253 262
Tax 50 57 53 48 57 53
PAT 203 200 210 193 196 208
Share of profit from assoc. - - - -1 1 1
Minority Interest - - - 0 0 0
PAT after share of associates
& minority interest 203 200 210 193 197 209
Source: Company, MOSL
Standalone and Consolidated Balance Sheet
Standalone Consolidated
FY11 FY12 FY13 FY11 FY12 FY13
Balance Sheet (INR b)
Share Capital 33 33 32 30 30 29
Reserves and Surplus 1,483 1,628 1,768 1,511 1,665 1,791
Minority Interest - - - 8 8 9
Debt 634 586 545 800 826 893
Deferred tax liability 116 121 122 111 116 116
Total Liabilities 2,265 2,368 2,467 2,460 2,644 2,839
Fixed Assets 1,549 1,215 1,289 1,863 1,642 1,834
Investments 377 540 525 216 386 428
Inventories 298 360 427 385 467 546
Trade receivables 174 184 119 157 169 98
Cash and bank balances 271 396 495 301 407 505
Loans and advances 175 254 325 127 165 195
Other Current Assets 2 2 5 26 36 18
Curr. Assets, L & Adv. 921 1,197 1,371 996 1,244 1,361
Trade payables 348 403 458 361 404 497
Other current liabilities 187 137 216 205 176 237
Provisions 46 43 43 50 48 51
Non-Current Liabilities 582 583 718 616 627 784
Total Assets 2,265 2,368 2,467 2,460 2,644 2,839
Source: Company, MOSL
17 April 2013 9

Reliance Industries
Valuation and view
• In FY14/FY15, we model (a) GRM at USD9/bbl, (b) KG-D6 gas price at USD4.2/7/
mmbtu, and (c) KG-D6 gas volumes at 13/15mmscmd.
• While turnaround in the Retail business (EBITDA of INR780m in FY13 v/s loss of
INR3.4b in FY12) is positive, any meaningful earnings addition is expected only in
FY16/17, when its large projects (pet coke gasification/off-gas cracker) commission.
Core business outlook (90% of earnings) remains subdued and we expect RoE to
hover at ~12%.
• The stock trades at 11.2x FY15E adjusted EPS and at an EV of 8.1x FY15E EBITDA. Our
SOTP-based target price is INR867. Maintain Neutral.
• Key things to watch: (1) DGH approvals for its E&P program, (2) Clarity on its E&P
arbitration and 7-year income tax holiday for KG-D6 gas (we model tax holiday),
(3) Margin trend in Refining and Petchem, (4) Developments on USD12b capex
plan, and (5) Updates on its BWA and Retail forays.
RIL: Key assumptions
Key Metrics FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Exchange Rate (INR/USD) 45.8 47.5 45.6 47.9 54.5 54.0 53.0
Refining
Capacity (mmt) 33.0 62.0 62.0 62.0 62.0 62.0 62.0
Production (mmt) 32.0 60.6 66.5 67.6 69.1 69.2 69.2
Capacity Utilization (%) 97 98 107 109 111 112 112
GRM (USD/bbl)
Blended GRM 12.3 6.9 8.7 8.4 9.2 9.0 9.0
Singapore GRM 5.8 3.6 5.2 8.3 7.9 7.5 7.5
Premuim to Singapore 6.5 3.3 3.5 0.1 1.3 1.5 1.5
E&P
Gas Production (mmscmd) 39.8 56.2 42.6 26.5 13.0 15.0
Oil Production (kbd) 10.7 18.9 13.8 8.8 6.5 6.0
Pricing
Brent Oil (USD/bbl) 84.8 69.7 86.5 114.5 110.6 110.0 110.0
Wellhead Gas Price (USD/mmbtu) 4.2 4.2 4.2 4.2 4.2 7.0
EPS 49.6 49.6 62.0 61.3 65.0 67.5 71.6
EPS (ex Treasury) 55.0 54.8 68.4 67.7 71.9 74.6 79.1
Source: Company, MOSL
RIL: Segmental EBIT break-up
FY09 FY10 FY11 FY12 FY13E FY14E FY15E
Segmental EBIT (INR b)
Refining 96 60 92 97 131 126 125
Petrochemicals 69 86 93 90 70 86 101
E&P 23 55 67 53 30 19 29
Total 188 200 252 239 231 231 256
Segmental EBIT share (%)
Refining 51 30 36 40 57 55 49
Petchem 37 43 37 38 30 37 40
E&P 12 27 27 22 13 8 11
Total 100 100 100 100 100 100 100
Source: Company, MOSL
17 April 2013 10

Reliance Industries
RIL: Sum-of-the-parts valuation
Business USD b INR b Adj. INR/sh Remarks/Methodology
Core business 32 1,746 598
Refining 19 1,026 352 EV @6x FY15E EBITDA, implied USD1126/Nelson complexity bpd
Petchem 13 720 246 Core business EV @6x FY15E EBITDA
E&P Initiatives 9 502 172 Includes KG-D6, NEC-25, CBM, KG-III-6 and Yemen block
KG - D6 Gas (KG Basin) 4 198 68 DCF; 60% stake; Plateau of 40mmscmd in FY18; 6tcf cumulative; 4tcf
remaining
KG - D6 MA1 Oil (KG Basin) 0 17 6 DCF; 60% stake; 43mmbbls recovery; (LT Brent - USD95/bbl)
NEC - 25 (Mahanadi basin) 1 37 13 DCF; 60% stake; OGIP of 3tcf, prodn likely in 2019
KG-DWN-2003/1 (D3) 1 28 9 Prospective resources of 695mmboe as per Hardy; RIL (60%)
Sohagpur East & West (CBM) 1 46 16 DCF; 100% stake; OGIP of 3.65 TCF, assumed 50% recovery
PMT 1 74 25 Currently producing; EV @3x FY15E EBITDA
Investment in Shale Gas 2 104 35 JV with Atlas, Pioneer & Carrizo; valued at 2x equity investment
Investments 3 162 55 Includes Reliance Retail, RGTIL, RIIL and SEZ
Investments in RGTIL, RIIL 0 24 8 At book value
Investments in BWA 1 48 16 BWA Foray
Investment in SEZ 0 21 7 Valued at 0.5x equity investment
Reliance Retail 1 69 23 100% subsidiary of RIL; 0.7x equity investment
Less: Net Debt/ (Cash) -2 -125 -42
Total Base Value 46 2,535 867 Based on fully diluted equity shares of 2,920m (excl 309m treasury shares)
Source: MOSL
17 April 2013 11

Reliance Industries
Reliance Industries: an investment profile
Company description
Reliance Industries (RIL), a Fortune 500 company, is
India's largest private sector entity, with 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.
Key investment arguments
E&P upside now seem back-ended: Post the reserve
downgrade by RIL and its JV partners, growth from E&P
segment seems to be limited in medium term. Delays in
approvals of development plans for satellite fields and
NEC-25 is further adding to uncertainty. RIL is the largest
exploration acreage holder in the private sector in India.
Post its world-scale gas discovery in 2002 in KG-D6; it has
reported more than 50 discoveries. Global major BP's
stake purchase in RIL's NELP blocks is expected to help
in tackling production issues in KG-D6. It should also help
RIL to enhance chances of new discoveries and obtain
higher recovery from its E&P acreage.
new refinery start-ups impacting global utilization/
margins will continue to weigh heavy on the RIL's
refining margin performance. We expect marginal
premium to benchmark Singapore refining margins to
continue in near term.
Petrochemicals - expect margins to improve: We believe
polymer margins have bottomed out but anticipate slow
recovery. In the medium term, we expect margins to
improve, as demand growth is likely to be higher than
incremental capacity additions.
Key investment risks
• Further delays in the KG-D6 gas volume ramp up.
• Our estimates could be adversely affected by lower
than expected refining and petchem margins.
Recent developments
• RIL has started drilling MJ1 well in KG-D6 block.
Management will update on the results of drilling in
a month's time.
• RIL submitted FDP for R-series field in January 2013.
• RIL has de-bottlenecked refining capacity at its SEZ
refinery resulting in a ~3% increase in capacity.
Refining - challenging times ahead: We expect the
margins to remain range bound over due to uncertain
global economic environment (particularly Europe), and
Valuation and view
The stock trades at 11.2x FY15E adjusted EPS and at an
EV of 8.1x FY15E EBITDA. Our SOTP-based target price is
INR867. Maintain Neutral.
Target Price and Recommendation
Current Target Upside Reco.
Price (INR) Price (INR) (%)
805 867 7.7 Neutral
EPS: MOSL forecast v/s consensus (INR)
MOSL Consensus Variation
Forecast Forecast (%)
FY14 67.1 69.8 -3.9
FY15 71.2 74.6 -4.5
Stock performance (1 year)
Shareholding Pattern (%)
Dec-12 Sep-12 Dec-11
Promoter 45.4 45.3 44.8
Domestic Inst 10.8 10.8 11.3
Foreign 21.9 21.8 21.2
Others 21.9 22.1 22.7
17 April 2013 12

Reliance Industries
Financials and Valuation
17 April 2013 13

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Disclosure of Interest Statement
Reliance Industries
1. Analyst ownership of the stock No
2. Group/Directors ownership of the stock No
3. Broking relationship with company covered No
4. Investment Banking relationship with company covered No
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