MOSL: RELIANCE INDUSTRIES (Buy)-Consumer businesses fuel growth
(RIL IN, Mkt Cap USD140.9b, CMP INR1581, TP INR1820, 15% Upside, Buy)
** Consol. EBITDA increased 5% YoY to INR223.9b (our estimate: INR206.2b) in 3QFY20, primarily led by the better-than-expected performance of the Digital and Retail segments. However, higher depreciation/interest and lower other income led to in-line PBT of INR149.1b (our estimate INR142.9b, +3% YoY). The company recognized an exceptional item of INR1.8b toward license fees/spectrum usage charges. Reported PAT came in at INR118.4b (+10% beat, +14% YoY) and adj. PAT at INR119.8b (11% beat, +15% YoY). Tax rate on a consol. basis stood at 20.9% v/s 24.7% last quarter as the company benefitted from lower tax in the standalone business.
** RIL reported in-line standalone revenue of INR862.9b (-14% YoY). EBITDA of INR128.7b (in-line) was down 11% YoY, primarily due to the poor petchem margins. Higher depreciation was offset by lower interest, resulting in PBT of INR117.5b. PAT of INR95.9b (+7% YoY) exceeded our estimate by 14% owing to the lower-than-estimated tax rate of 18.5%.
** 9MFY20 performance: Standalone EBITDA declined 10% YoY to INR401.8b, while PAT grew 6% YoY to INR283.2b due to a lower tax rate of ~21.6% v/s 26.1% in 3QFY19. Refining throughput was flat YoY, while GRM was lower by 7% YoY at USD8.9/bbl. Consol. EBITDA grew 4% YoY to INR658.5b, while PAT was up 13% YoY to INR333.3b.
In-line throughput and GRM
** Refining EBIT was up 14% YoY at INR56.1b. RIL recorded highest ever premium to SGRM of USD7.5/bbl (v/s USD4.5 in 3QFY19 and USD4.1 in 2QFY20), primarily due to a negligible yield of fuel oil (FO), which suffered the steepest decline in crack in the quarter. Widening of the light-heavy differential also supported GRM.
** GRM stood at USD9.2/bbl (our estimate: USD9.0) v/s USD8.8 in 3QFY19 and USD9.4 in 2QFY20. Throughput was at 18.1mmt (our estimate: 17.8mmt; +5% YoY, -2% QoQ).
** SGRM was lower in the quarter due to a steep fall in FO cracks because of IMO 2020, while HSD cracks failed to improve.
** However, RIL has an insignificant FO yield and thus, through maximizing middle distillates, managed to record the highest ever premium to the SG benchmark.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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