Reliance Industries' Q1FY19 results (Upgrade to Outperformer) - A quarter of positive surprises
Q1FY19 result highlights
- RIL reported consol PAT of Rs94.9bn (up 15% yoy), ahead of estimates (Rs93.9bn), driven by strong operating results in petchem and a better than estimated EBIT of Rs17.1bn in the telecom business vs estimates of 16.1bn.
- Refining segment disappointed however, with GRMs of US$10.5/bbl (IDFCe US$10.7bbl, Q4FY18 and Q1FY18 GRMs at US$11.0/11.9/bbl respectively). Thruput at 16.6mt, marginally below IDFCe 16.7mt
- Jio revenue/EBITDA of Rs81/31.5bn vs IDFCe Rs75.5/28.6bn. Subscriber base of 215mn and ARPU of Rs134.5 were both ahead of estimates for the quarter.
- Petchem EBIT of Rs78.6bn was the highest ever, growing 2x yoy. EBITDA of Rs92bn (+82% yoy) and margins of 22.9% +310 bps yoy.
Key positives: Strong Petchem metrics, Jio beat and strong retail results. .
Key Negatives: Lower GRMs and higher interest costs.
Impact on financials: FY19/20E EPS estimates raised 1% to reflect higher Petchem/Jio/retail. FY21E EPS estimates of Rs108 introduced. TP raised to Rs1350/sh
Valuations & View- strong momentum ahead
RIL has now reported a double digit yoy earnings increase for 6 consecutive quarters, with the massive ~US$70bn investment in downstream + Telecom+ other business in last 5 years starting to deliver material operating traction for the company. The RIL Chairman recently articulated his ambition to make the non-energy business equivalent to energy business contribution to the business in the next 5-10 years. This implies that the ~Rs99bn (EBITDA contribution from Retail + Jio) from these businesses in FY18 is targeted to grow 8x over the next 7-8 years to match the estimated energy business EBITDA of Rs775-800bn by then. We have worked with the telecom and retail research teams at IDFC to rework our estimates of these businesses in light of the staggering ambition of the company, with our revised estimates pointing to a CAGR of 22% in EPS over FY18-21E and sharply higher SOTP contribution of the retail business and refining business in our revised TP of Rs1350/sh, 19.5% upside. Upgrade to outperformer.
Reliance Industries is primarily engaged in the production and market of petrochemical products, and refinery and retail of petroleum and LPG. Co.'s petrochemical products include polymer - polypropylene (PP), polyethylene (PE), poly vinyl chloride (PVC); polyester - polyester filament yarn (PFY), polyester staple fiber (PSF), polyethylene terephthalate (PET); polyester intermediates - paraxylene (PX), purified terephthalic acid (PTA), mono-ethylene glycol (MEG); and cracker products - ethylene, propylene and aromatics. Co. is also engaged in the manufacture of RELAB and textiles. Co.'s textile products are sold under the brand names: Only Vimal, Harmony, Reance, RueRel and V2.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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