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.
| BUSINESS SUBSIDIARY | Value per Share(₹) |
| CORE BUSINESS | |
Refining
|
318.00
|
Petro chemicals
|
265.00
|
E&P
INITIATIVES
|
|
KG
- D6 Gas (KG Basin)
|
25.00
|
KG
- D6 MA1 Oil (KG Basin)
|
11.00
|
KG
- DWN - 2003/1 (D3)
|
10.00
|
NEC - 25 (Mahanadi Basin)
|
15.00
|
Sohagpur East & West (CBM)
|
13.00
|
Other E&P
|
25.00
|
INVESTMENTS
|
|
In Shale Gas
|
41.00
|
In RGTIL, RIIL
|
11.00
|
In SEZ
|
14.50
|
In BWA
|
18.00
|
In Reliance Retail
|
20.00
|
Less: Debt
|
14.00
|
Plus: Treasury Stock
|
68.00
|
TOTAL
VALUE OF SHARE
|
840.50
|
| KEY FINANCIALS | FY12 | FY13E | FY14E | FY15E |
|---|---|---|---|---|
| SALES (₹ Crs) | 3,57,900 | 3,62,000 | 3,26,500 | 3,21,100 |
| NET PROFIT (₹ Cr) | 20,000 | 21,900 | 22,100 | 23,300 |
| EPS (₹) | 62.00 | 67.80 | 68.30 | 72.10 |
| PE (x) | 14.50 | 13.30 | 13.20 | 12.50 |
| P/BV (x) | 2.20 | 2.00 | 1.70 | 1.60 |
| EV/EBITDA (x) | 7.40 | 7.10 | 7.90 | 6.30 |
| ROE (%) | 14.60 | 15.70 | 14.00 | 13.10 |
| ROCE (%) | 12.40 | 12.90 | 12.20 | 12.30 |
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
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