Reliance Industries (RIL) continued to deliver steady earnings with Q1FY20 consolidated PAT at INR101bn beating estimate by 2.3%. EBITDA at INR208bn (adjusted for gains from Ind-AS 116: INR4.8bn) was broadly in line with estimate. Key highlights: 1) RIL has announced that the INR252bn investment by Brookfield in the tower InvIT will be used primarily for repayment of existing debt; 2) it has expanded coker capacity to leverage IMO, enabling it to convert HSFO in to gasoil; 3) refining in Q1FY20 delivered a solid beat on EBITDA (6% above estimate) despite lower GRM (GRM: USD8.1/bbl, estimate: 8.3/bbl) due to surge in refinery utilization; 4) petchem beat estimate 5% due to ramp up of cheaper ethane imports replacing costlier naptha and propane; and 5) RJIO’s earnings came in line while capex continues to remain elevated accounting for bulk of the INR220bn invested during the quarter. With no clarity on start of petcoke gasifier, we revise down refining and petchem earnings (lower polymer margins) leading to 4.5% cut in FY20E EPS for RIL and 3% cut in TP to INR1,652/share (INR1701 earlier). Maintain ‘BUY’.
Cut earnings, maintain Hold: We cut our estimates for FY20/21E by 10%/9% respectively to factor in lower GRMs. Our PT cut is cushioned by increased in value of retail to Rs132 (Rs117 earlier). We maintain our rating to ACCUMULATE.
Valuations We value the company using SOTP valuation, thereby, valuing refining & petchem business at 7.0x FY21E EBITDA & telecom at 7.0x FY21E EBIDTA to arrive at a target price of INR 1638/share indicating 18.2% upside. We strongly recommend to add the stock on dips with an investment horizon of 1 year.