Reliance Industries Research Report By IIFL

Over the past few months RIL has underperformed the broader market rally. One of the prime reasons for the same has been a weak performance of its E&P segment plagued by falling gas production and bureaucratic issues. Over the next three years, we believe, these core businesses will drive a strong 25% CAGR in standalone EBIDTA on the back of commencement of large scale projects ‐ off gas cracker and petcoke gasification.

The petcoke gasification project whereby RIL is investing US$4bn is expected to commence operations in FY17. Commencement of this project will allow RIL to replace expensive RLNG with gas produced from petcoke leading to incremental US$2/bbl GRM (management guidance of US$2.5/bbl). Off gas cracker will provide a consistent low cost supply of feedstock to the petrochemical plants where RIL is increasing its capacity. While
the global environment has been moderately improving form GRMs and petrochemical spreads, RIL will outperform the benchmarks by a significant margin.

The E&P segment, which has gone through its share of trials and tribulations, is likely to see a revival in fortunes with gas price hike, moderate increase in production at KG‐D6, commencement of production at new fields and possible exploration upsides from current exploration activities. Shale gas on the other hand will continue to show robust growth in revenues and profitability as both volumes and gas prices head north. While Telecom business might achieve EBIDTA breakeven in three years considering its asset light model, Retail business will show improved trend in profitability. P/E valuations of 10.4x on FY16E earnings is much below RIL’s historical average and we believe a re‐rating is due given strong earnings growth profile in the coming years. We maintain BUY with a 2‐year price target of Rs1,400.

Download Reliance Industries’ Research Report