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RELI.BO 12m Price Target: Rs1,550.00 Price: Rs1,189.25 Upside: 30.3% Nikhil Bhandari
+65-6889-2867 | nikhil.bhandari@gs.com
Goldman Sachs (Singapore) Pte
RELIq.L 12m Price Target: $44.37 Price: $32.15 Upside: 38.0%
Vinit Joshi
+91(22)6616-9158 | vinit.joshi@gs.com
RIL shares have pulled back over 20% YTD and are discounting Goldman Sachs India SPL
trough valuation multiples on trough energy business earnings. Manish Adukia, CFA
+91(22)6616-9049 | manish.adukia@gs.com
We believe the market still does not fully appreciate the “unique” Goldman Sachs India SPL
hedges in its hydrocarbon business driven by feed and product Aditya Soman
+91(22)6616-9345 | aditya.soman@gs.com
diversity and asset complexity, which would drive positive cash Goldman Sachs India SPL
For the exclusive use of HEMEN.MODI@RIL.COM
margin even during a recession with limited volume risk. We believe Key Data __________________________________
contribution from the fast-growing consumer businesses will also Market cap: Rs7.7tr / $100.8bn
Enterprise value: Rs9.9tr / $130.1bn
reach ~50% over next fiscal year with the ability to gain market 3m ADTV: NA
India
share in the current downturn from highly levered peers. All in, we Asia Refining
M&A Rank: 3
expect a rapid earnings recovery and a significant step up in FCF Leases incl. in net debt & EV?: No
Asia ex. Japan Conviction List
even under the current challenging macro environment as capex
intensity will continue to decline. Inside this note we deep dive on GS Forecast ________________________________
3/19 3/20E 3/21E 3/22E
RIL’s path to earnings recovery and sensitivities around cash Revenue (Rs mn) New 5,810,200.0 5,694,546.9 4,854,836.5 6,735,688.2
Revenue (Rs mn) Old 5,810,200.0 5,698,081.8 5,013,079.5 6,584,918.7
flows/leverage. We also address six key investor debates and EBITDA (Rs mn) 840,210.0 863,983.4 918,671.7 1,276,525.4
EPS (Rs) New 61.27 66.31 73.28 117.20
preview 4QFY20 earnings. Reiterate Buy (on CL) with 30% upside EPS (Rs) Old 61.27 66.92 80.41 123.63
potential to our Rs1,550 SOTP-based 12-month price target. P/E (X) 18.3 17.9 16.2 10.1
P/B (X) 1.9 1.8 1.6 1.4
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Dividend yield (%) 0.6 0.6 0.6 0.7
Exhibit 1: We see 30% upside to our 12M TP of CROCI (%) 12.2 12.0 11.0 13.5
Rs1,550
12/19 3/20E 6/20E 9/20E
RIL SOTP
EPS (Rs) 18.02 15.23 12.43 14.74
EBITDA Multiple EV Per sh EV
Rs bn x Rs bn Rs US$ bn GS Factor Profile ____________________________
Chemicals 292 8.0 2,335 361 $32 Growth
Refining & Market 268 6.5 1,743 270 $24
E&P 433 67 $6 Financial Returns
Treasury stock 731 113 $10
Organized Retail 3,351 519 $46
Telecom (Jio) 4,353 674 $60 Multiple
Total 12,945 2,003 $177
Net debt 1,827 283 $25 Integrated
Implied equity value 11,117 1,722 $152
Conglomerate Discount(10%) 1,112 172 $15
FY21E based SOTP valuation 10,006 1,550 $137 Percentile 20th 40th 60th 80th 100th
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs Reliance Industries (RELI.BO)
Total revenue growth 42.3 (2.0) (14.7) 38.7 Accounts receivable 300,890.0 189,818.2 161,827.9 224,522.9
EBITDA growth 30.8 2.8 6.3 39.0 Inventory 675,610.0 664,363.8 539,426.3 673,568.8
EPS growth 9.7 8.2 10.5 59.9 Other current assets 546,540.0 546,540.0 546,540.0 546,540.0
DPS growth 8.3 7.7 7.1 6.7 Total current assets 2,307,550.0 2,359,952.6 2,513,920.9 3,196,087.6
EBIT margin 10.9 11.4 14.0 15.1 Net PP&E 5,778,370.0 6,163,283.3 6,255,653.8 6,403,018.4
EBITDA margin 14.5 15.2 18.9 19.0 Net intangibles -- -- -- --
Net income margin 6.8 7.5 9.8 11.2 Total investments 26,940.0 26,940.0 26,940.0 26,940.0
Other long-term assets 1,911,200.0 1,911,200.0 1,911,200.0 1,911,200.0
Price Performance _______________________________________ Total assets 10,024,060.0 10,461,375.9 10,707,714.7 11,537,245.9
RELI.BO (Rs) India BSE30 Sensex Accounts payable 1,083,090.0 1,107,273.0 1,078,852.6 1,403,268.4
Short-term debt 799,990.0 799,990.0 799,990.0 799,990.0
1,800 50,000
Short-term lease liabilities -- -- -- --
1,600 45,000 Other current liabilities 1,290,140.0 1,290,140.0 1,240,140.0 1,140,140.0
Total current liabilities 3,173,220.0 3,197,403.0 3,118,982.6 3,343,398.4
1,400 40,000
Long-term debt 2,263,450.0 2,293,450.0 2,193,450.0 2,093,450.0
1,200 35,000 Long-term lease liabilities -- -- -- --
1,000 30,000 Other long-term liabilities 633,470.0 633,470.0 633,470.0 633,470.0
Total long-term liabilities 2,896,920.0 2,926,920.0 2,826,920.0 2,726,920.0
800 25,000 Total liabilities 6,070,140.0 6,124,323.0 5,945,902.6 6,070,318.4
ccca0be4d0ba400ba20aa41ca9b792dd
Preferred shares -- -- -- --
Jul-19 Oct-19 Jan-20 Apr-20
Total common equity 3,871,120.0 4,251,762.8 4,674,032.1 5,376,657.6
3m 6m 12m Minority interest 82,800.0 85,290.0 87,780.0 90,270.0
Absolute (22.9)% (12.1)% (11.4)% Total liabilities & equity 10,024,060.0 10,461,375.9 10,707,714.7 11,537,245.9
Rel. to the India BSE30 Sensex 5.1% 9.2% 11.9% Net debt, adjusted 2,278,930.0 2,134,209.5 1,727,313.3 1,141,984.2
Source: FactSet. Price as of 13 Apr 2020 close.
Cash Flow (Rs mn) _______________________________________
3/19 3/20E 3/21E 3/22E
Net income 395,880.0 428,465.1 473,507.4 757,279.4
D&A add-back 209,340.0 212,555.8 239,707.0 256,584.0
Minority interest add-back -- -- -- --
Net (inc)/dec working capital (251,490.0) 146,501.0 74,507.4 27,578.2
Other operating cash flow 103,630.0 129,310.8 46,791.5 9,405.5
Cash flow from operations 457,360.0 916,832.7 834,513.3 1,050,847.1
13 April 2020 2
Goldman Sachs Reliance Industries (RELI.BO)
ccca0be4d0ba400ba20aa41ca9b792dd
Concerns on balance sheet and FCF overdone
Investor queries highlight their concerns around RIL’s balance sheet FCF and debt
repayments. We note leverage has already been declining and will likely continue to
come down in FY21 as well even in our bear case scenario. Our bear case assumes (1)
US$7/bbl GRM in FY21, (2) US$20/bbl oil driving PE price of US$450/tonne and (3) a
deeper impact to retail business (down 50% YOY) from an extended period of lockdown.
Deleveraging will be driven by internal FCF generation from a combination of (1) low
cash cost and complex hydrocarbon asset base driving cash positive margins even
during a potential recession with limited volume impact, (2) telecom and grocery
cashflows which remains resilient despite the negative impact from COVID-19 and the
related nationwide lockdown in India, (3) continuous decline in capex driving positive
cashflows even for consumer businesses and (4) working capital release from lower oil
price.
13 April 2020 3
Goldman Sachs Reliance Industries (RELI.BO)
turnaround in 2HFY21. We expect a rapid recovery for RIL’s earnings driven by (1) 60%
EBITDA growth for telecom business in FY21 on account of higher ARPU, (2) recovery in
oil prices and refining margins as supply demand trends improve in 2HFY21, and (3)
turnaround in retail business once lock down restrictions are lifted.
We continue to use 8X avg CY20/21 (FY21/22) to value the chemical business, and 6.5X
for refining and marketing; we use EV/EBITDA to value the core refining and petchem
business, and DCF to value the high-growth telecom and retail businesses. Refining,
petrochemical and telecom are the key drivers of our valuation, accounting for c.65% of
our EV.
Key risks
Lower-than-expected refining/chemical margins, lower-than-expected ARPU, project
delays and higher future capex.
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Exhibit 2: We expect growth in consumer businesses (rising to over Exhibit 3: From our Bear case analysis, even under trough refining
50% of total EBITDA in FY23E) to compound with a cyclical margins (GFC) and lower oil prices ($20/bbl) scenario, RIL could
recovery in energy business, leading to 20% EBITDA growth CAGR deliver a positive FCF...
over FY20E-23E RIL GS Base versus Bear FCF, US$ bn
RIL EBITDA by segment (US$ bn) and consumer business (Retail &
Telecom) % contribution (RHS)
$24 60% GS Base Case FCF (US$ bn) Bear Case FCF
$10
$20 50%
$2.2 $8
$1.6 $6
$16 40%
$4
$8.5
$12 $1.0 $7.1 30% $2
$1.3
$0
$3.1 $5.0
$8 20% ($2)
$4.0 $4.5 $5.0
$2.5 $5.4 ($4)
$2.1 $4.5 $3.6
$4 10% ($6)
$4.1 $4.3 $4.5 $4.5 $4.6
$3.3 $2.9 $3.0 ($8)
$0 0%
($10)
FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY23E
($12)
Refining Chem Telecom Retail Consumer % [RHS]
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
13 April 2020 4
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 4: ...and deleverage in FY21E... Exhibit 5: ...while having ample liquidity in hand to pay down entire
RIL GS Base versus Bear leverage, % 2020 debt maturity assuming no refinancing
Cash & Cash Equivalents bridge assuming full paydown of debt
maturing in FY21E, US$ bn
GS Base Net Debt / Equity (%) Bear Net Debt / Equity (%) $24
60%
$20
50%
$16 $6.4
40% $11.0
$12
30%
$8
20% $13.1
$4 $8.6
10%
0% $0
C&CE, as of Mar-20 FY21E FCF Debt Maturity FYE Net Cash,
assuming Full
Paydown
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
Exhibit 6: We see 30% upside to ur 12M TP of Rs1,550 Exhibit 7: Current share price imply US$6/bbl GRM and oil at
For the exclusive use of HEMEN.MODI@RIL.COM
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Goldman Sachs Global Investment Research Note: We use FY21/22E avg. oil of US$42/bbl, GRM of US$10/bbl and implied multiple of 7.2X
for hydrocarbon business for valuation.
13 April 2020 5
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 8: RIL is trading at trough multiple on our bear case Exhibit 9: ...despite having lower EBITDA volatility vs peers
earnings... EBITDA volatility (coefficient of variation) versus peers
Shareprice implied Avg 2020/21E EV/EBITDA
10X 1.2
1.1
7.8X 1.0
8X
0.8
5.9X
6X 5.5
0.6
0.6
4X
3.0X 0.4 0.3
0.3
2X
0.2
0.1
0X 0.0
RIL Base (Refining & RIL Bear Chemical Pure-play Refiners Refining Commodity Diversified Speciality RIL
Petchem) Chemical Chemical Chemical
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
Exhibit 10: We see the path forward as rapid recovery for core Exhibit 11: While over the medium term, we expect consumer and
Hydrocarbon and retail, while Jio will be miniminally impacted energy business to both deliver sequential earnings growth
For the exclusive use of HEMEN.MODI@RIL.COM
Reliance recovery path by segment, EBITDA in US$ bn RIL quarterly EBITDA trend, US$ bn
Reliance Recovery Path Favorably Positioned
Minimal Impact Rapid Recovery Consumer business Energy business
Business should hold up relatively better, even if the Business should recover relatively quickly (in 1-2 Q's) $4.5
shutdowns are extended. once the environment stabilizes.
$4.0
- Telecom/Jio - Core Hydrocarbon (Refining & Petchem)
1QFY18 1QFY19 1QFY20 1QFY21E 1QFY17 1QFY19 1QFY21E
$3.5
$3
$3.0
$2
$1 $2.5
$1
$2.0
$0
$0 - Retail $1.5
1QFY18 1QFY19 1QFY20 1QFY21E
$1
$1.0
$0.5
$0.0
$0
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
13 April 2020 6
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 12: RIL can generate positive FCF even at US$6/bbl GRM and US$20/bbl oil price as capex will surprise to the downside
Sensitivity analysis for SOTP, upside, FCF, leverage under different oil and GRM assumptions
Implied Valuation Brent Upside Brent
Rs $20 $40 $60 % $20 $40 $60
$6 1,305 1,397 1,488 $6 10% 18% 26%
GRM $8 1,380 1,471 1,562 GRM $8 17% 24% 32%
$10 1,454 1,545 1,637 $10 23% 31% 38%
$12 1,528 1,620 1,711 $12 29% 37% 45%
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13 April 2020 7
Goldman Sachs Reliance Industries (RELI.BO)
In our view, despite challenges to refining demand in the near term, we expect Reliance
to continue to outperform regional peers/benchmark margins due to a combination of
having the highest refining complexity globally, operational excellence and favorable
crude sourcing. The complexity and low cost nature of the asset drives positive cash
margins even during recession with limited risk to volumes. We estimate margins to
trough in 4QFY20 at US$6.5/bbl due to inventory losses. We forecast GRM of
US$8.5/bbl and US$11.2/bbl in FY21/22.
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Exhibit 13: Reliance has the highest refining complexity in our Exhibit 14: ...driving more resilient refining margins versus peers
coverage... during downturns
Refining Nelson Complexity Index GRM, US$/bbl
14 Asia $16
$14
12 US
$12
10 $10
$8
8
$6
6 $4
$2
4 $0
($2)
2
($4)
0
Source: Data compiled by Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
13 April 2020 8
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 15: In our view, RIL will continue to outperform benchmark Exhibit 16: ...helped by multi-year low discounts on heavy crude
SG refining margins... feedstock
Reliance vs benchmark SG refining margins, US$/bbl Basrah and Arab Heavy crude premiums, US$/bbl
$18 $2
$16
$0
$14
$12 ($2)
$7
$10
$6 $3 $4 ($4)
$6 $2
$8 $4 $5
$2 $2 $4 $8
$3 $2
$6 $5 ($6)
$3
$4 $8
($8)
$2
$0 ($10)
Source: Company data, Datastream, Goldman Sachs Global Investment Research Source: Bloomberg
In our view, investor concerns around margin squeeze from lower oil prices are
overdone as: (1) naphtha cracking margins have expanded which impacts two-third of
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RIL’s petchem output, and (2) ethane prices have declined from 14 cents per gallon to 10
cents per gallon. It is worth noting that the cost of “off-gas” used for chemical feedstock
is linked to oil and will come down with lower oil prices.
Beyond the near to medium term volatility in oil prices as well as demand, we continue
to view RIL’s product portfolio, cost curve position and feedstock diversity as optimally
positioned amongst regional peers to maximize margin capture while reducing volatility
— enabling RIL to enjoy margin expansion in naphtha cracking during lower oil, as well
as benefits of ethane cracking advantage seen over the last few years.
13 April 2020 9
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 17: Reliance has unique feed diversity for petrochemicals... Exhibit 18: ...to drive more stable earnings and maximize margin
RIL petrochemical feed mix capture in any macro environment...
RIL realized PE spreads, US$/ton
$1,250
100%
$1,000
80%
Imported Ethane
Imported propane $750
60%
Domestic C2/C3
40% Naphtha $500
Refinery-off gas
20% $250
0% $0
Source: Company data, Goldman Sachs Global Investment Research Note: 60% naphtha and 40% ethane-based since CY2018.
Exhibit 19: ...allowing it to become the Asian regional champion in Exhibit 20: ...while chemical EBITDA has consistently shown
For the exclusive use of HEMEN.MODI@RIL.COM
Reliance Lotte Chem LG Chem Hanwha Chem EBITDA (US$ bn) EBITDA per tonne (US$/t) [RHS]
PTTGC PCHEM SCC IRPC
$1.50 $600
$500/t
$1.25 $500
$400/t
$1.00 $400
$300/t
$0.75 $300
$200/t
$0.50 $200
$100/t
$0.25 $100
$0/t
$0.00 $0
-$100/t
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
We view telecom earnings as relatively defensive, and do not foresee any significant
change in user behavior despite a tough macro environment. In fact, with a large
proportion of the population currently staying at home, we expect data usage to
potentially rise, resulting in faster adoption of home broadband, and some subscribers
upgrading to bigger data packs on wireless; we note that India has only 18 mn home
broadband users, vs >600 mn wireless broadband users.
However, our India Telecom analyst, Manish Adukia, CFA expects the ongoing situation
around COVID-19 to likely result in telcos delaying a potential tariff hike. In December
2019, Jio raised tariffs after a gap of 2 years, and we had forecast another round of tariff
increase in 1HFY21. However, we believe the potential tariff increase could be delayed
to 2HFY21, as consumption demand is likely to be negatively impacted in the near term.
13 April 2020 10
Goldman Sachs Reliance Industries (RELI.BO)
Despite a delay in tariff hike, we forecast Jio to deliver >20% top line growth for the
next two years (FY21-FY22), led by (1) the impact of recent tariff hike, (2) increased
adoption of data, and (3) new revenue streams like home broadband. Given high
operating leverage, we expect the above to translate into 40% EBITDA CAGR
(FY20-23E) for the telecom business.
Exhibit 21: We expect ARPU for Jio to approach Rs200/month by Exhibit 22: We forecast continued market share expansion for Jio
FY23 Revenue market share of Indian telcos
RIL ARPU (Rs/month) and revenue growth
6% 4% 4% 3%
9%
17%
201 26%
190
33% 12% 28% 36% 41%
32% 171 43% 44%
144
124 41% 39%
33% 27%
20% 25% 22% 22%
16%
FY20E FY21E FY22E FY23E FY24E FY17 FY18 FY19 FY20E FY21E FY22E FY23E
For the exclusive use of HEMEN.MODI@RIL.COM
ARPU (Rs/month) Revenue growth (YoY) Bharti Airtel Vodafone Idea Jio Others
Note: Excluding incoming IUC revenues. Source: TRAI, Goldman Sachs Global Investment Researc
Source: Goldman Sachs Global Investment Research
Exhibit 23: We expect capital intensity to remain low as RIL shifts Exhibit 24: Market share and Margins drive key difference in
from investment to monetisation phase and support FCF valuation of Jio versus Bharti
RIL Jio EBITDA and Capex, Rs bn Jio valaution comparison with Bharti Airtel
$6 bn $60 bn
618 $9 bn
685 $50 bn
501 $44 bn
Jio
$7 bn EBITDA
Implied
margin at
354 Jio FY22
Implied 55%, vs
market EV/
ccca0be4d0ba400ba20aa41ca9b792dd
FY22 46% for
share at EVITDA
EV/ Bharti due
223 43%, vs of 8.7x
EBITDA to
151 31% for
of 9.3x operating
Bharti
200 198 leverage
170
140
Bharti Airtel Of which Africa Bharti India Incremental Incremental Jio Enterprise
FY19 FY20E FY21E FY22E FY23E Enterprise and towers Enterprise value due to value due to Value
value Value higher market higher EBITDA
EBITDA Capex
share margin
Source: Goldman Sachs Global Investment Research Market share and EBITDA margin numbers for FY22; implied value on GS target prices. INR/USD
Fx of 73
13 April 2020 11
Goldman Sachs Reliance Industries (RELI.BO)
earnings.
For illustrative purposes, we conduct a sensitivity analysis on the retail segment of RIL.
This is in line with the latest published report from our retail team.
Bear case: Assuming all other parameters remain the same as the base case, we
estimate a slightly larger impact on the grocery business as well as even more severe
decline in 1HFY21E for Consumer Electronics and Fashion & Lifestyle segments. Overall
we model sales per sqft growth over the next four quarters of -15%/-5%/3%/3% for
For the exclusive use of HEMEN.MODI@RIL.COM
groceries and -70%/-50%/8%/8% for non-groceries due to a more severe impact from
an extended nationwide lockdown with no new store adds in 1Q and only a trickle in 2Q.
In our base case we expect FY22E EBITDA to be up 23% from FY20E, versus in our
bear case FY22E is flattish versus FY20E and growth only resumes by FY23E (up 45%
over FY20E).
ccca0be4d0ba400ba20aa41ca9b792dd
possible during the lockdown. Another important factor determined by the duration of
the lockdown will also be the pace of recovery. A shorter 21 day lockdown (as currently
in place) will likely see a faster rebound in growth compared to a longer lockdown, if
announced by the government.
13 April 2020 12
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 25: We expect a rapid earnings recovery in our GS Base Exhibit 26: ...versus a relatively slower recovery in our Bear case
case for the core retail segment... RIL Core Retail Bear case EBITDA (Rs bn), and margin (%) trend
RIL Core Retail Base case EBITDA (Rs bn), and margin (%) trend
120 8% 120 8%
80 6% 80 6%
40 4% 40 4%
0 2% 0 2%
FY17 FY18 FY19 FY20E FY21E FY22E FY23E FY17 FY18 FY19 FY20E FY21E FY22E FY23E
Note: Core Retail consists of Grocery, Consumer Electronics, and Fashion & Lifestyle. Note: Core Retail consists of Grocery, Consumer Electronics, and Fashion & Lifestyle.
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
Exhibit 27: We expect throughput to recover quickly in our base Exhibit 28: We expect a more severe decline in for Consumer
For the exclusive use of HEMEN.MODI@RIL.COM
case, while a prolonged lockdown would result in slower recovery Electronics and Fashion & Lifestyle segments relative to Grocery
RIL Retail Base versus Bear Sales (Rs) per Sq ft RIL Retail quarterly Sales (Rs) per Sq ft
GS Base case Sales (Rs) per Sq ft Bear case Sales (Rs) per Sq ft GS Base case Sales (Rs) per Sq ft Grocery
9,000 20,000
30,000
6,000 15,000
3,000 10,000
20,000
0 5,000
10,000
FY17 FY18 FY19 FY20E FY21E FY22E FY23E
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
700
600
500
400
300
200
100
0
FY17 FY18 FY19 FY20E FY21E FY22E FY23E
13 April 2020 13
Goldman Sachs Reliance Industries (RELI.BO)
Our analysis suggests the stock is already pricing in: (1) trough GRMs of US$6/bbl, (2)
trough oil price of US$20/bbl for petchem revenues (implying PE price of US$450/t), and
(3) trough EV/EBITDA multiple of 5x. Overall current share price implied EV of
hydrocarbon business is US$20 bn versus our base case of US$56 bn and bear case of
US$42 bn. Key catalysts for the stock’s outperformance over the next 12 months would
be: (1) quarterly earnings where delivery could be better than investor expectations, (2)
FCF generation driving lower net debt even during challenging hydrocarbon and India
ccca0be4d0ba400ba20aa41ca9b792dd
macro environment, and (3) incremental newsflow around asset sale initiatives.
13 April 2020 14
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 32: Current share price imply US$6/bbl GRM and oil at Exhibit 33: ...while we view risk-reward as attractive post recent
US$20/bbl driving PE price of US450/t... pullback
GS Base case SOTP bridge to shareprice (Rs per sh) and implied EV Upside sensitivity to Brent and GRM
(US$ bn)
Upside Brent
Rs per sh U S$ bn % $20 $40 $60
1,600 $140 $6 21% 30% 38%
GRM $8 28% 36% 45%
100
1,450
$130 $10 35% 43% 52%
$12 42% 50% 59%
150 $120
1,300
1,550
100 $110
1,150
$100
1,200
1,000 $90
GS Base case Oil to $20/bbl GRM to $6/bbl EV/EBITDA to Shareprice
SOTP 5X
Note: We use FY21/22E avg. oil of US$42/bbl, GRM of US$10/bbl and implied multiple of 7.2X Source: Goldman Sachs Global Investment Research
for hydrocarbon business for valuation.
Exhibit 34: Reliance is trading close to trough multiple on bear Exhibit 35: ...despite Reliance having lower EBITDA volatility vs
case earnings... peers
Shareprice implied Avg 2020/21E EV/EBITDA versus pure-play peers EBITDA volatility (coefficient of variation) versus pure-play peers
10X 1.2
1.1
7.8X 1.0
8X
0.8
5.9X
6X 5.5
0.6
0.6
4X
3.0X 0.4 0.3
0.3
2X
0.2
0.1
0X 0.0
ccca0be4d0ba400ba20aa41ca9b792dd
RIL Base (Refining & RIL Bear Chemical Pure-play Refiners Refining Commodity Diversified Speciality RIL
Petchem) Chemical Chemical Chemical
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
13 April 2020 15
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 36: Share price implied valuation of refining and chemical Exhibit 37: RIL implied energy business valuation has
segment has collapsed since mid Jan levels underperfomed peers with lower complexity and lower feed
Share price implied valuation of refining and chemical business, US$ bn diversification
Share price performance since coronavirus outbreak mid Jan
$80
20% 15%
$60 0%
0%
$40
(20%) (17%)
(22%) (20%)
$20
(40%)
$0
(60%)
($20)
(67%)
(80%)
RIL RIL S Oil Lotte Bharti Airtel D Mart (Retail)
"Ref+Chem" (Refining) (Chemical) (Telecom)
Share Price Implied Ref+Chem EV GS Ref+Chem EV Implied Value
Source: Bloomberg, Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research
earnings drivers
6% 5.5%
5.3%
5% 4.7%
3.0%
3%
2.4%
2% 1.5%
1% 0.6%
0%
US$1/bbl GRM US$10/bbl oil US$50/t petchem 10 Rupee ARPU Depreciation by
margin Rs 1
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Goldman Sachs Global Investment Research
➏ Can RIL generate positive FCF and deleverage in our bear case
scenario?
Investor queries highlight concerns around RIL’s balance sheet and debt repayments.
We note leverage has already been declining and will likely continue to come down in
FY21 as well even in our bear case scenario. Our bear case assumes (1) US$7/bbl GRM
in FY21 (2) US$20/bbl oil driving PE price of US$450/tonne, and (3) a deeper impact to
retail business (down 50% YOY) from an extended period of lockdown. Deleveraging will
be driven by internal FCF generated by a combination of: (1) low cash cost and complex
hydrocarbon asset base driving cash positive margins even during recession with limited
volume impact, (2) telecom and grocery cashflows which remains resilient despite the
negative impact from COVID-19 and the related nationwide lockdown, (3) continuous
decline in capex driving positive cashflows even for consumer businesses, and (4)
working capital release from lower oil price.
13 April 2020 16
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 39: RIL can generate positive FCF even at US$6/bbl GRM and US$20/bbl oil implying PE price of US$450/t
Sensitivity analysis
Implied Valuation Brent Upside Brent
Rs $20 $40 $60 % $20 $40 $60
$6 1,305 1,397 1,488 $6 10% 18% 26%
GRM $8 1,380 1,471 1,562 GRM $8 17% 24% 32%
$10 1,454 1,545 1,637 $10 23% 31% 38%
$12 1,528 1,620 1,711 $12 29% 37% 45%
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Exhibit 40: RIL capital intensity should continue to lower with Exhibit 41: ...while having ample liquidity in hand to pay down
completion of long gestation hydrocarbon and telecom capex... entire 2020 debt maturity assuming no refinancing
Annual capex by segment, Rs bn Cash & Cash Equivalents bridge assuming full paydown of debt
maturing in FY21E, US$ bn
$20 $24
$18 We estimate US$
$2 $2 5bn of capex for $20
$16 $6
$3 Jio in FY19 is
$14 from the $6.4
$16
$12 demerged fibre
$9 $2 $11.0
$11 and tower assets
$10 $3 $7 $12
$8 $10
$7 $3 $8
$6 $4
$13.1
$2 $2
$4 $3 $1
$6 $7 $4 $8.6
$2 $4 $5 $2 $3 $3
$4 $3 $3
$0 $1 $1 $1
$0
FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY23E C&CE, as of Mar-20 FY21E FCF Debt Maturity FYE Net Cash,
assuming Full
Refining & Petchem Jio Others Paydown
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
13 April 2020 17
Goldman Sachs Reliance Industries (RELI.BO)
Exhibit 42: We have modeled a slight sequential decline for 2 quarters, while Telecom maintains the momentum
RIL quarterly expectations
4QFY19 1QFY20 2QFY20 3QFY20 4QFY20E QOQ YOY 1QFY21E 2QFY21E 3QFY21E 4QFY21E
Refining 50 52 57 65 37 -44% -26% 35 40 62 79
Chemical 94 88 89 73 74 2% -21% 53 62 66 82
Retail 19 20 23 27 24 -12% 25% 10 15 20 26
Telecom 43 47 52 56 69 23% 59% 77 83 93 101
Others 4 6 1 3 2 NM NM 2 4 5 4
Total EBITDA 209 213 222 224 205 -8% -2% 177 204 247 291
Crude throughput 16.0 17.5 16.7 18.1 17.9 -1% 12% 15.0 16.0 18.0 18.0
GRM (US$/bbl) $8.2 $8.1 $9.4 $9.2 $6.0 ($3.2) ($2.2) $7.0 $7.4 $8.9 $10.8
Exhibit 43: We expect RIL GRM to improve sequentially from Exhibit 44: ...while Petchem earnings will be flattish as margins
4QFY20 trough while sustaining premium over benchmark already hit trough during 3QFY20
margins... RIL petchem quarterly trend
Reliance vs peers and benchmark SG refining margins, US$/bbl
Reliance Reuters SG GRM SK Inno S-Oil Thai Oil EBITDA (US$ bn) EBITDA per tonne (US$/t) [RHS]
$1.25 $500
$10
$1.00 $400
$5
$0.75 $300
$0
$0.50 $200
($5)
$0.25 $100
($10) $0.00 $0
ccca0be4d0ba400ba20aa41ca9b792dd
Source: Company data, Datastream, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
13 April 2020 18
Goldman Sachs Reliance Industries (RELI.BO)
Disclosure Appendix
Reg AC
We, Nikhil Bhandari, Vinit Joshi, Manish Adukia, CFA and Aditya Soman, hereby certify that all of the views expressed in this report accurately reflect
our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will
be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
The Goldman Sachs Factor Profile provides investment context for a stock by comparing key attributes to the market (i.e. our coverage universe) and its
sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
normalized ranks for the metrics are then averaged and converted into percentiles for the relevant attribute. The precise calculation of each metric may
vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
higher percentile indicating a higher growth company. Financial Returns is based on a stock’s forward-looking ROE, ROCE and CROCI (for financial
stocks, only ROE), with a higher percentile indicating a company with higher financial returns. Multiple is based on a stock’s forward-looking P/E, P/B,
price/dividend (P/D), EV/EBITDA, EV/FCF and EV/Debt Adjusted Cash Flow (DACF) (for financial stocks, only P/E, P/B and P/D), with a higher percentile
indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
for the fiscal year at least seven quarters in the future compared with the year at least three quarters in the future (on a per-share basis for all metrics).
For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.
For the exclusive use of HEMEN.MODI@RIL.COM
M&A Rank
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representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
factor into our price target, and may or may not be discussed in research.
Quantum
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Disclosures
Financial Advisory Disclosure
Goldman Sachs and/or one of its affiliates is acting as a financial advisor in connection with an announced strategic matter involving the following
company or one of its affiliates: Reliance Industries Limited
ccca0be4d0ba400ba20aa41ca9b792dd
Coverage group(s) of stocks by primary analyst(s)
Nikhil Bhandari: Asia Chemicals, Asia Refining, India/ASEAN Oil & Gas. Vinit Joshi: India/ASEAN Oil & Gas. Manish Adukia, CFA: India TMT. Aditya
Soman: India Consumer.
Asia Chemicals: China Steel Chemical, Far Eastern New Century Corp., Formosa Chemicals & Fibre, Formosa Petrochemical Corp., Formosa Plastics,
Hanwha Chemical, IRPC PCL, Kumho Petro Chemical Co., LG Chem, Lotte Chemical, Nan Ya Plastics, Petronas Chemicals Group, PTT Global Chemical,
Siam Cement PCL, Taiwan Synthetic Rubber Corp..
Asia Refining: Bangchak Corp PCL, Bharat Petroleum, GS Holdings, Hindustan Petroleum, Indian Oil Corp., Reliance Industries, Reliance Industries
(GDR), S-Oil Corp., SK Innovation, Thai Oil.
India Consumer: Aditya Birla Fashion and Retail, Asian Paints (India), Avenue Supermarts Ltd., Britannia Industries Ltd., Colgate Palmolive (India), Dabur
India, Emami Ltd., Godrej Consumer Products Ltd., Hindustan Unilever, ITC, Jubilant Foodworks, Marico, Nestle India, Page Industries Ltd., Titan Co.,
United Breweries Ltd., United Spirits.
India TMT: Bharti Airtel, Bharti Infratel Ltd., Dish TV India, Info Edge India Ltd., MakeMyTrip Ltd., PVR Ltd., Vodafone Idea Ltd., Zee Entertainment
Enterprises.
India/ASEAN Oil & Gas: First Resources, GAIL India Ltd., Golden Agri-Resources Ltd., Gujarat State Petronet, Indraprastha Gas Ltd., Oil & Natural Gas
Corp., Oil India, Perusahaan Gas, Petronet LNG, PTT Exploration and Production PCL, PTT Public Co., Wilmar International.
13 April 2020 19
Goldman Sachs Reliance Industries (RELI.BO)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Reliance Industries (Rs1,189.25) and Reliance
Industries (GDR) ($32.15)
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ccca0be4d0ba400ba20aa41ca9b792dd
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Goldman Sachs Reliance Industries (RELI.BO)
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ccca0be4d0ba400ba20aa41ca9b792dd
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an
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13 April 2020 21
Goldman Sachs Reliance Industries (RELI.BO)
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ccca0be4d0ba400ba20aa41ca9b792dd
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13 April 2020 22