17 January 2014
3QFY14 Results Update | Sector:
Oil & Gas
Reliance Industries
BSE SENSEX
20,608
Bloomberg
Equity Shares (m)
M.Cap. INR b/USD b
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,113
RIL IN
3,230.6
2,811.5/45.7
955/765
2/-9/-6
CMP: INR885
TP: INR957
Neutral
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
BV/Sh.INR
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2014E
3,992
306
219
74.8
4.1
680
11.6
11.0
13.1
1.3
2015E
3,928
358
246
84.1
12.7
750
11.8
11.5
11.6
1.2
2016E
3,910
402
275
93.8
11.6
830
11.9
11.8
10.4
1.1
Reliance Industries’ (RIL) 3QFY14 EBITDA was largely in line at INR76.2b (-9% YoY,
-3% QoQ). However, PAT was above estimate at INR55.1b (flat YoY and QoQ,
estimated INR52b) led by lower depreciation at INR21.4b (-13% YoY, -4% QoQ) and
higher other income at INR23b (+32% YoY, +12% QoQ).
GRM in-line; Petchem below est. led by lowest margins in the last 5 quarters
RIL reported refining EBIT of INR31.4b (-13% YoY, -1% QoQ) and GRM of USD7.6/bbl (-
21% YoY, -1% QoQ) v/s estimate of USD7.5/bbl, leading to a premium over Singapore
GRM of USD3.3/bbl. Petchem EBIT was below estimate at INR21b (est. INR23.1b) led
by lower margins, primarily in PP/PVC and fibre intermediates. EBIT margin stood at
8.4% (v/s 8.8% in 3QFY13, 10.1% 2QFY14), lowest in past five quarters.
Telecom capital employed at INR260 (+INR50b QoQ); retail PAT turns positive
Telecom venture capital employed stands at INR260b, implying an increase of INR50b
in 3QFY14. RIL has recently applied to participate in the ongoing 2G spectrum auction
and is expected to launch voice services along with its core data offering. Organized
retail business reported positive PAT for the first time (number not disclosed), while its
revenue stood at INR39.3b (+16% QoQ, +38% YoY) and EBITDA at INR1b (+6% QoQ).
Expect KG-D6 to avg. ~15mmscmd in FY15; meaningful ramp-up still 3-4 years away
While management did not give any details on its telecom venture, the capital
employed stands at INR260b, implying an increase of INR50b in 3QFY14. RIL has
recently applied to participate in the ongoing 2G spectrum auction and is expected to
launch voice services along with its core data offering. Organized retail business
reported positive PAT for the first time (number not disclosed), while its revenue
stood at INR39.3b (+16% QoQ, +38% YoY) and EBITDA at INR1b (+6% QoQ).
Valuation and view
RIL’s earnings profile for the next few quarters seems to be largely range-bound,
with meaningful addition only towards early FY16 when bulk of its polyester capacity
is commissioned. We expect the next earnings growth in RIL in FY17, when its large
projects commission and gas volumes increase. Till then, RoE will hover at ~12%. On
FY15E basis, the stock trades at 11.6x adj. EPS of INR84.1 and EV/EBITDA of 8.1x. Our
SOTP-based target price stands at INR957/share. 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 snapshot
Source: MOSL, Company
17 January 2014
2

Reliance Industries
Key highlights
Other income was higher QoQ at INR23.1b (+32% YoY , +12% YoY) led by higher
interest income. 3QFY14 interest income stood at INR18.5b, while non-interest
income was at INR4.6b v/s INR5b in 2QFY14.
D, D&A was down 4% QoQ to INR21.4b led by lower petchem depreciation.
Gross interest cost stood at INR9.8b (v/s INR8.8b in 3QFY13, INR9.9b in 2QFY14),
while net interest stood at INR7.9b (v/s INR8.1b in 3QFY13, INR8.1b in 2QFY14).
Interest capitalized increased sharply QoQ to INR1.9b (v/s INR700m in 3QFY13,
INR1.8b in 2QFY14) led by increased capex (CWIP) towards new projects.
Effective tax rate stood at 21.2% (v/s 19.7% in 3QFY13 and 20.1% in 2QFY14).
Gross debt stood at INR813b (v/s INR840b in 2QFY14), and cash/cash
equivalents at INR887b (v/s INR905b in 2QFY14), translating to net cash of
INR74b (v/s INR66b in 2QFY14).
Consolidated level debt stands at 1,250b.
Capital employed in telecom business stands at INR260b (INR5b spent in
3QFY14) and in Retail business at ~INR92b.
Capex in 3QFY14 stood at INR75b (E&P: INR4b, refining: INR39b and petchem at
INR32b) while capex in 9MFY14 stands at INR276b.
E&P EBIT share up QoQ led by 2QFY14 cargo sale in 3QFY14 (%)
Source: Company, MOSL
Share of OI in overall profits increased in 3QFY14
RIL balance sheet at net cash of INR74b
Source: MOSL, Company
Source: MOSL, Company
17 January 2014
3

Reliance Industries
RIL to get higher gas price from April 14, subject to bank guarantees:
MOPNG
notified the Domestic Natural Gas Pricing Guidelines, 2014 in-line with the
Rangarajan Committee’s gas price formula and implies new gas price at
~USD8.4/mmbtu v/s current USD4.2/mmbtu. The formula is applicable from
April 1, 2014 (FY15) and will be valid for 5 years, while hike to RIL is subject to
furnishing of a bank guarantee. We were already modeling USD8/mmbtu price
from FY15E in our estimates.
New projects on track; polyester commissioning starts
RIL has commenced commercial production from its new polyester capacity in
Silvassa (0.4mmt) and is on track in implementation in other projects.
RIL continues to guide GRM benefit of USD2.5/bbl from its petcoke gasification
project. Petcoke gasification project construction has commenced and petcoke
storage dome structure is near completion. While, and ordering of long lead
items is complete and delivery of bulk items on site has started.
We expect the full benefit of these projects (Petcoke gasification and off gases
cracker) to accrue in FY17.
New projects to drive RIL’s next growth phase
Project
Off-gases cracker
Integrated gasification
combined cycle (IGCC)
Polyester expansion
Total
Capex (USDb)
4.0
4.0
4.0
12.0
Source: Company, MOSL
Feedstocks
Refinery off-gases
(From CDU, FCC etc.)
Key Products
Petrochemicals (mainly
ethylene chain)
Petcoke
Petrochemicals, Power,
(From delayed coker unit) Steam, Chemicals
PX, PFY, PSF, PET
Status update of ongoing core business capex plans
Source: Company, MOSL
17 January 2014
4

Reliance Industries
REFINING: In-line performance; EBIT at INR31.4b (53% of total)
GRM at USD7.6/bbl; premium to Singapore at USD3.3/bbl
Refining EBIT stood at INR31.4b (-13% YoY and -1% QoQ). Refinery EBIT
contribution to overall segmental EBIT stood at 53% in 3QFY14. (v/s 58% in
3QFY13 and 52% in 2QFY14).
RIL’s 3QFY14 GRM at USD7.6/bbl was in-line with our estimate of USD7.5/bbl
and was down 21% YoY and 1% QoQ.
YoY fall in GRM was driven by lower gasoline and FO cracks.
RIL reported premium to Singapore GRM at USD3.3/bbl (v/s premium of
US3.1/bbl in 3QFY13 and USD2.3/bbl in 2QFY14) primarily due to higher
light-heavy crude price differentials.
RIL clocked quarterly throughput at 17mmt (v/s 17.7mmt in 2QFY14) and is
likely to take a shutdown in 4QFY14 in its DTA refinery CDU. 3QFY14 refinery
utilization stood at 110%.
Refining outlook: We expect GRM's to remain range bound in medium-term due
to (a) weak global oil demand (~1.2mmbbl/d in 2013) and (b) additional refining
capacity of >1.2mmbbl/d. We model in GRM of USD8.0/8.5/bbl in FY14/15 for
RIL.
Lower opex helps to report better refining EBIT QoQ despite lower throughput and GRM
Source: Company, MOSL
3QFY14 GRM at USD7.6/bbl; premium of USD3.3/bbl
Refinery throughput reduces QoQ, utilization at 110%
Source: MOSL, Company
Source: MOSL, Company
17 January 2014
5

Reliance Industries
Auto fuel cracks weak on QoQ basis (USD/bbl)
Source: MOSL, Bloomberg
Arab Light-Heavy spreads up by USD0.8/bbl QoQ (USD/bbl)
Brent-WTI spread jumps to 11.9 v/s 4.3 in 2QFY14 (USD/bbl)
Source: MOSL, Bloomberg
Source: MOSL, Bloomberg
RIL’s Outlook on Refining Business seems to be cautiously optimistic
Source: Company
17 January 2014
6

Reliance Industries
PETROCHEMICALS: Margins decline meaningfully, volumes lower
EBIT margins lowest in last 5 quarters
RIL’s petchem EBIT stood at INR21b (+10% YoY, -15% QoQ) and contributed to
36% of overall EBIT.
3QFY14 petchem EBIT margin stood at 8.4% (v/s 8.8% in 3QFY13 and 10.1% in
2QFY14), lowest in last 5 quarters due to weak domestic demand and decline in
margins of PP, PVC and fibre intermediates.
On the demand front, polymer and polyester demand was weak on QoQ basis.
9MHFY14 domestic polymer demand was up 3% YoY (5% in PP and 4% in
PVC, PE was flat).
Overall Polyester demand was up 4% YoY for 9MFY14 (5% in POY, 1% in PSF
and 2% in PET).
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 higher than incremental capacity additions. However,
over the longer term, margin trend will depend on the new shale gas based
capacity additions in US.
Petchem EBIT lowest in last 5 quarters
Source: Company, MOSL
Except PE, all margins down QoQ (INR/kg)
Petchem volumes decline QoQ (mmt)
Source: MOSL, Company, Bloomberg
Source: MOSL, Company, Bloomberg
17 January 2014
7

Reliance Industries
E&P: D1/D3 & MA to ramp-up to 15mmscmd in FY15
However, expect next big production jump only in FY18
E&P EBIT was higher than estimate at INR5.4b (v/s INR5.9b in 3QFY13 and
INR3.6b in 2QFY14, now contributes ~9% to the total EBIT). Higher than
expected EBIT was due to sale of crude cargo in 3QFY14 (production accounted
in 2QFY14) and led by higher oil production at PMT fields.
KG-D6 averaged 12.4mmscmd in 3QFY14:
KG-D6 gross volumes averaged
12.4mmsmcd in 3QFY14 (v/s 24mmscmd in 3QFY13 and 14mmscmd in 2QFY14.
RIL is currently operating 2 rigs, one at the MJ-A1 appraisal and the second at
D1-D3 field in KG-D6. Drilling of MA8H well was completed in January 2014 and
management guides for production increase of ~2.5mmscmd in KG-D6 with
upside being based on well performance.
Update on development projects:
RIL management indicated that the timelines
for its E&P development projects remain largely similar to 2QFY14 guidance. Big
production jump from its satellite and R-series fields in KG-D6 and NEC-25 block
is expected after 3-4 years; while CBM production (Sohagpur) is expected in
FY16
E&P EBIT margin surges QoQ (%)
Source: Company, MOSL
KG-D6 gross prodn averaged 12.4mmscmd in 3QFY14
RIL’s net HC production at 6.7mmboe
Source: MOSL, Bloomberg
Source: MOSL, Bloomberg
17 January 2014
8

Reliance Industries
Status of RIL's key blocks: Meaningful production uptick still 3 years away
*MC: Management Committee; FDP: Field Development Plan
Shale Gas volumes jump QoQ; EBITDA benefited by hedging gains:
3QFY14
shale gas volumes increased QoQ to 43bcfe in 3QFY14 (+33% YoY, +18% QoQ)
led by higher production of 1.2mmscmd in Pioneer JV. Revenues (not accounted
in standalone) of USD221m and EBITDA at USD174m as against its cumulative
investment of USD6.8b (~USD400m in 3QFY14). While production and revenues
were up 15% and 18% YoY, its EBITDA was up 37% primarily due to hedging
gains (not disclosed) and cost optimization.
Shale gas EBITDA jumped QoQ at USD174m in 3QFY14, partly due to hedging gains
Shale gas capex at USD374m; USD6.8b till date (incl. carry);
expect FY15 capex similar to FY14
Production up QoQ; new wells in Chevron, midstream
constraints resolved in Carizzo
Source: MOSL, Company
17 January 2014
Source: MOSL, Company
9

Reliance Industries
Organized Retail: 9MFY14 revenues up 40% YoY at INR109b
Turns PAT positive in 3QFY14
RIL has invested ~INR92b till date in organized retail business. It currently
operates 1,577 stores (v/s 1,569 on September 30, 2013, closed 66 stores of
non-vegetarian food retail format ‘Delight’) in 141 cities and has an area of
10.7m sq.ft.
Same store sales growth (9MFY14) stood at 11% in Value format, 10% in Digital
and 20% in Fashion & Lifestyle.
RIL management is very enthused by the Cash-and-Carry format and has
presence in 15 cities currently.
Reliance retail has opened >100 stores in 9MHFY14; total area of 10.7 mn sq ft
No. of stores
Addition
Area (m sq ft)
Average area per store (sq ft)
No. of Cities
Avg. stores per city
FY08
590
3.5
5,932
57
10
FY09
900
310
4.0
4,471
80
11
FY10
1,050
150
5.0
4,762
85
12
FY11
1,140
90
5.5
4,825
86
13
FY12
1,282
142
6.5
5,070
86
15
FY13
1,466
184
9.0
6,139
129
11
1QFY14
2QFY14
3QFY14
1,511
1,569
1,577
45
58
8
9.4
10.0
10.7
6,221
6,373
6,386
134
136
141
11
12
11
Source: Company, MOSL
Focus on Digital segment clearly visible from store expansion
Brands
Jewellery
Fashion and Lifestyle
Digital
Value and others
Total Stores
FY12
49
37
353
93
750
1,282
FY13
68
51
448
139
760
1,466
1QFY14
82
54
455
151
769
1,511
2QFY14
90
54
471
180
774
1,569
3QFY14
95
54
508
212
708
1,577
Source: Company, MOSL
RIL Reliance Retail: Revenue break up
INR b
FY11 FY12 FY13
Brands
1
1
2
Jewellery
3
5
8
Fashion and Lifestyle
8
11
16
Digital
7
12
21
Value and others
42
46
61
Total Stores
61
76
108
9MFY14
2
12
14
23
58
109
% contribution
FY11
FY12 FY13
2%
5%
13%
12%
69%
100.0%
2%
2%
7%
7%
15% 15%
16% 19%
61% 57%
100.0% 100.0%
9MFY14
2%
11%
13%
21%
53%
100%
Source: Company, MOSL
17 January 2014
10

Reliance Industries
Valuation and view
MOPNG notified the Domestic Natural Gas Pricing Guidelines, 2014 in-line with
the Rangarajan Committee’s gas price formula and implies new gas price at
~USD8.4/mmbtu v/s current USD4.2/mmbtu. The formula is applicable from
April 1, 2014 (FY15) and will be valid for 5 years while hike to Reliance Inds is
subject to furnishing of a bank guarantee.
Key things to watchout for RIL:
1) DGH approvals for its E&P program, (2)
Update on its Telecom business foray, (3) Margin trend in refining and petchem,
(4) Developments on USD12b capex plan, and (5) Update on its BWA and retail
foray.
RIL’s earnings profile for next few quarters seem to be largely range-bound with
meaningful addition only towards early FY16 when bulk of its polyester capacity
commissions. We expect the next big earnings growth in RIL in FY17, when its
large projects (petcoke gasification/off-gas cracker) commissions and later in
FY18 when its gas volumes increase, till then ROE’s will hover at ~12%.
For FY14/FY15, we model a) GRM at USD8/8.5/bbl, b) KG-D6 gas price at
USD4.2/8/mmbtu and c) KG-D6 volumes at 13.8/15mmscmd, respectively. Every
USD1/bbl change in GRM impacts RIL’s EPS by ~10%.
On FY15E basis, the stock trades at 11.6x adj. EPS of INR84.1 and EV/EBITDA of
8.1x. Our SOTP basis target price stands at INR957/sh. Neutral.
RIL: Key assumptions
Key Metrics
Exchange Rate (INR/USD)
Refining
Capacity (mmt)
Production (mmt)
Capacity Utilization (%)
GRM (USD/bbl)
Blended GRM
Singapore GRM
Premuim to Singapore
E&P
Gas Production (mmscmd)
Oil Production (kbd)
Pricing
Brent Oil (USD/bbl)
Wellhead Gas Price (USD/mmbtu)
EPS
EPS (ex Treasury)
FY09
45.8
33.0
32.0
97.0
12.3
5.8
6.5
FY10
47.6
62.0
60.6
98.2
6.9
3.6
3.3
39.8
10.7
84.8
49.6
55.0
69.7
4.2
49.6
54.8
FY11
45.6
62.0
66.5
107.3
8.4
5.2
3.2
56.2
18.9
86.5
4.2
62.0
68.4
FY12
47.9
62.0
67.6
109.0
8.6
8.3
0.3
42.6
13.8
114.5
4.2
61.3
67.7
FY13
54.5
62.0
69.1
111.4
9.2
7.9
1.4
26.5
9.1
110.6
4.2
65.0
71.9
FY14E
60.5
62.0
68.6
110.7
8.0
5.6
2.5
13.8
6.1
108.5
4.2
67.7
74.8
FY15E
61.0
62.0
68.3
110.1
8.5
6.5
2.0
15.0
6.0
105.0
8.0
76.1
84.1
FY16E
60.0
62.0
68.3
110.1
9.0
6.5
2.5
20.0
7.0
105.0
8.0
84.9
93.8
Source: MOSL, Company
17 January 2014
11

Reliance Industries
RIL: Segmental EBIT break-up
FY09
Segmental EBIT (INRb)
Refining
Petrochemicals
E&P
Total
Segmental EBIT share (%)
Refining
Petchem
E&P
Total
96
69
23
188
51
37
12
100
FY10
60
86
55
200
30
43
27
100
FY11
92
93
67
252
36
37
27
100
FY12
97
90
53
239
40
38
22
100
FY13
128
73
29
230
56
32
13
100
FY14E
128
89
18
236
FY15E
142
110
28
280
FY16E
154
130
32
316
54
51
49
38
39
41
8
10
10
100
100
100
Source: MOSL, Company
RIL: Sum-of-the-parts valuation
Business
Core business
Refining
Petchem
E&P Initiatives
KG - D6 Gas (KG Basin)
KG - D6 MA1 Oil (KG Basin)
NEC - 25 (Mahanadi basin)
KG-DWN-2003/1 (D3)
Sohagpur East & West
(CBM)
PMT
Investment in Shale Gas
Investments
Less: Net Debt/ (Cash)
Total Base Value
USD b
32
18
14
9
3
0
1
1
1
1
2
3
-2
45
INR b
1,969
1,124
845
537
211
18
43
31
48
68
117
191
-98
2,795
Adj.
INR/sh
674
385
289
184
72
6
15
11
17
23
40
65
-34
957
Based on fully diluted equity shares of
2,921m (excl 309m treasury shares)
Source: Company, MOSL
Remarks/Methodology
EV @6x FY15E EBITDA, implied
USD1094/Nelson complexity bpd
Core business EV @6x FY15E EBITDA
Includes KG-D6, NEC-25, CBM, KG-III-6 and
Yemen block
DCF; 60% stake; Plateau of 40mmscmd in
FY18; 6tcf cumulative; model 4tcf yet to
recover
DCF; 60% stake; 43mmbbls recovery; (LT
Brent - USD100/bbl)
DCF; 60% stake; OGIP of 3tcf, prodn likely in
2019
Prospective resources of 695mmboe as per
Hardy; RIL (60%)
DCF; 100% stake; OGIP of 3.65 TCF, assumed
50% recovery
Currently producing; EV @3x FY15E EBITDA
JV with Atlas, Pioneer & Carrizo; valued at 2x
equity investment
Includes Reliance Retail, RGTIL, RIIL and SEZ
17 January 2014
12

Reliance Industries
Reliance Industries: an investment profile
Company description
Reliance Industries Ltd (RIL), a Fortune 500 company,
is India's largest private sector entity, with a turnover
of USD66.8b and net profit of USD3.9b. Over the
years, RIL has grown through backward integration in
energy chain (textiles, petchem, refining and E&P)
and is now moving into new areas like organized
retail and BWA. It operates one of the largest refining
capacity of 1.24mmbbl/d at a single location and is
the largest producer of polyester fibre and yarn.
Petchem margins seem to have bottomed, capacity
to be ~2x in next 3-4 years:
We believe polymer
margins have bottomed out but anticipate slow
recovery. RIL's polyester expansion and off-gases
based cracker will almost double its petchem
capacity. However, long term margin outlook
depends on the new shale-based capacity additions
in the US
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.
Key investment arguments
Likely higher gas price from FY15 improves E&P
outlook:
Scheduled doubling of domestic gas price to
~USD8.4/mmbtu from FY15 is a positive, but
meaningful benefit to RIL will accrue only at higher
production levels. While current D1/D3 fields might
see some increase by end-FY15, large production
from satellite/R-series in KG-D6 and NEC-25 is
expected only from FY18.
Refining - petcock gasification to improve GRM:
While GRM is expected to remain range bound in the
medium term, management expects at least
USD2/bbl increase, post the petcoke gasification
project (scheduled completion in 2016/17).
Recent developments
Announced a new gas condensate discovery ‘D-56’
in block CY-DWN-2001/2 in the Cauvery basin. This
is the second discovery in the block.
Signed a Joint Study Agreement with Petroleos de
Venezuela, SA (PdVSA) for Ayacucho Block 8 in
Orinoco Oil Belt.
Valuation and view
On FY15E basis, the stock trades at 11.6x adj EPS
of INR84.1 and EV/EBITDA of 8.1x. Our SOTP basis
target price stands at INR957/sh.
Neutral.
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
67.7
76.1
Consensus
Forecast
71.2
81.7
Variation
(%)
-5.0
-6.9
Target price and recommendation
Current
Price (INR)
885
Target
Price (INR)
957
Upside
(%)
8.1
Reco.
Neutral
Stock performance (1-year)
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
17 January 2014
45.4
11.4
22.4
20.8
Sep-13
45.4
11.7
21.8
21.1
Dec-12
45.4
10.8
21.9
21.9
13

Reliance Industries
Financials and valuation
17 January 2014
14

Reliance Industries
NOTES
17 January 2014
15

Disclosures
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
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