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Friday, May 3, 2013


Scrip Code: 500325 RELIANCE

CMP:  Rs. 802.90; Buy at current levels.

Medium to Long Term Target: Rs. 840.50; STOP LOSS – Rs. 738.66; Market Cap: Rs. 2,35,731.44 Cr; 52 Week High/Low: Rs. 955.00 / Rs. 673.05.
Total Shares: 322,86,63,382 shares; Promoters : 146,39,41,357 shares –45.34 %; Total Public holding : 176,47,22,025 shares –54.65. %; Book Value: Rs. 504.62; Face Value: Rs. 10.00; EPS: Rs. 64.84; Dividend: 85.00 %; P/E: 12.38 times; Ind. P/E: 13.84; EV/EBITDA: 10.36.
Total Debt: Rs. 72,427 Cr; Enterprise Value: Rs. 2,26,132.44 Cr.

RELIANCE INDUSTRIES LTD: The Company was founded on 11th February 1966 by name of Reliance Textile Industries Pvt Ltd in Mumbai, Maharashtra. In November of 1977, the promoters Mr. Dhirajlal H Ambani & Mr. Natvarlal H Ambani along with some other existing shareholders offered for sale at par 28,20,000 equity shares to the public to get listed on Bombay Stock Exchange. In June 27th of 1985, company again changed its name from Reliance Textiles Industries Ltd to its current name Reliance Industries Ltd. Reliance Industries Limited (RIL) is a conglomerate with business in the energy and materials value chain. RIL together with its subsidiaries, primarily engages in the exploration and production of oil and gas in India and worldwide. The company operates two refineries and owns 1.24 million barrels per day of crude processing capacity. The Company operates in three segments: Petrochemicals, Refining and Oil & Gas segments. The Petrochemicals - includes production and marketing operations of petrochemical products namely, polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fiber, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The Refining - includes production and marketing operations of the petroleum products. The Oil and Gas - includes exploration, development and production of crude oil and natural gas. Its other segment includes Textile, Retail business, Special Economic Zone (SEZ) development and Telecom / Broadband business. RIL, during the fiscal year ended March 31, 2012; increased its interest to 18.53% in EIH Limited. The company is compared locally with HPCL, BPCL, Mangalore Refinery, Chennai Petroleum Corp. Ltd, and Globally with Exxon Mobil Corp and Chevron Corp both from USA; Royal Dutch Shell PLC from Netherlands; BP from UK; Endesa SA from Spain; Rosneft Oil, Lukoil and Gazprom Oao both from Russia; RWE AG and E.On AG both from Germany; China Petroleum & Petro China Corp both from China; Total SA from France; Petrobrass Brasileiro from Brazil.

Investment Rationale:
Reliance Industries Ltd (RIL) is one of the India’s most valued private sector company but its current earnings supports the fact that it is not interested in investing its whopping Rs. 82,980 Cr cash in its core business anymore. This is proven by the fact that its FY12-13 Net profit of Rs. 21,003 Cr had a contribution of around Rs. 7,981 Cr or 38% earned as an interest from the cash pile that RIL had been hoarding from past couple of years. RIL is now concentrating more on its non-core businesses and among them is Retail and Telecom which will directly allow RIL to participate and take advantage of India’s consumption growth story. Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using Dense Wavelength Division Multiplexing, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. The high speed link will enable Reliance Jio to extend its network and service reach to customers across Asia Pacific region. It will connect Reliance Jio directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Recently, Reliance Jio has formed a consortium with five companies Viz, Telekom Malaysia Berhad, Vodafone Group, Omantel, Etisalat and Dialog Axiata to construct & maintain an 8,000 Km long Bay of Bengal Gateway submarine cable system this will connect India, Sri lanka Malaysia, Singapore and West Asia. This cable system will link all these countries with 100 Gbps technology and will help Reliance Jio in making its network more robust and cost effective, which means lower 4G cost for subscribers. This system may also gain access in international 4G standards- FDD-LTE which is currently unavailable in India as the only 4G band available in India is TD-LTE. RIL’s another prominent subsidiary - Reliance Retail LTD, showed strong growth in sales from 7% to 18% in same store sales format and that also in such a competitive and challenging environment. It currently has a pan India presence with a store count of 1,466 totaling to 9 million sqfts spread across 129 cities and will be soon adding 184 stores more by the end of this fiscal. Reliance Retail has Reliance One loyalty program which has about 13 million members and contributes about 65 % of sales from these loyal customers. These stores every week have footfalls of 25 lakhs. Reliance Retail’s business crossed Rs. 10,800 Cr revenue mark with a growth of 42% YoY as against Rs. 7,599 Cr in FY12. It posted EBIDT of Rs. 78 Cr with a growth of whopping 123% as against the loss of Rs. 342 Cr in FY12. Reliance Retail Ltd has about 50 retail-business as its own subsidiary. Reliance Retail Ltd.’s Fashion & lifestyle format posted revenue of Rs. 1600 Cr showing a growth of 45% from 448 stores and will be adding 95 more new stores. Its Jewellery format posted revenue of Rs. 800 Cr showing a growth of 57% from 51 stores and will be adding 14 more new stores. Its Value format posted revenue of Rs. 6100 Cr showing a growth of 19% from 760 stores and will be adding 10 more new stores. Its Brands format posted revenue of Rs. 200 Cr showing a growth of 82% from 68 stores and will be adding 19 more new stores and its Digital format posted revenue of Rs. 61 Cr showing a growth of 76% from 139 stores and will be adding 46 more new stores.

Outlook and Valuation:
RIL completed India’s largest share buyback programme aggregating to Rs.3,366 Cr and bought back 4,62,00,000 Shares of Face value of Rs. 10 each. RIL posted a record performance in Net Profit of Rs. 5,589 Cr for Q4FY13 which is up by 31.9 % on YoY. Refining Earnings before Interest and Tax beat the street and grew to 4.5% to Rs. 3,520 Cr on back off better Gross Refining Margins. GRM improved from $9.6/bbl to $10.1/bbl. Reliance Sibur Elastomers Private Limited (RSEPL), a joint venture between RIL and SIBUR began construction of their new butyl rubber plant, in Jamnagar. The new plant will be India’s only manufacturer of butyl rubber and the JV will be amongst the world’s top five manufacturers of butyl rubber. RIL will supply monomer and provide the JV with world-class infrastructure and utilities. Reliance has already started market seeding butyl rubber from SIBUR in India. The response is very encouraging. Reliance witnessed sharp improvement in complex refining margin and delivered record performance taking benefit of being an integrated energy Company. The fair value of RIL on basis using DCF comes at Rs. 840.50/share, while the valuation of its investments in subsidiaries comes at Rs. 104.50/share. At the current market price of Rs. 802.90, the stock is trading at 11.75 x FY14E EPS of Rs 68.30/share and at 11.13 x FY15E EPS of Rs 72.10/share. Declining gas production in KG basin as a concern will remain for some more time. RIL on the back of higher incremental new capacity compared to incremental demand refining cycle going ahead could be weak. However, a positive point could trigger from governments stance towards Reliance’s exploration and production efforts and the growth shown by its Retail Business and with the new venture in Telecom by forming JV's and by launching 4G, RIL surely will have the first mover advantage. The buyback of share will impact about 1.5% on EPS and will cause positively to raise it from current level; hence the stock could be a buy at current levels with a medium to long term target of Rs. 840.50.

Petro chemicals
KG - D6 Gas (KG Basin)
KG - D6 MA1 Oil (KG Basin)
KG - DWN - 2003/1 (D3)
NEC - 25 (Mahanadi Basin)
Sohagpur East & West (CBM)
Other E&P
In Shale Gas
In Reliance Retail
Less: Debt
Plus: Treasury Stock

SALES ( Crs)3,57,9003,62,0003,26,5003,21,100
NET PROFIT (₹ Cr)20,00021,90022,10023,300
EPS ()62.0067.8068.3072.10
PE (x)14.5013.3013.2012.50
P/BV (x)
EV/EBITDA (x)7.407.107.906.30
ROE (%)14.6015.7014.0013.10
ROCE (%)12.4012.9012.2012.30

I would buy RELIANCE INDUSTRIES LTD with a price target of  840.50 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 738.66 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold RELIANCE INDUSTRIES LTD in my investment portfolio. 



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