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MOSL: RELIANCE INDUSTRIES - AGM Takeaways - Focus on ongoing capex execution - High expectations from telecom




Motilal Oswal Securities Ltd.


19 Jun 2014





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RELIANCE INDUSTRIES | AGM Takeaways: Focus on ongoing capex execution; High expectations from telecom; long gestation projects could be a drag on medium term earnings though Core capex projects on track; E&P development contingent on new gas price RIL’s capex in ongoing investment cycle is largest ever with overall capex plan of INR1.8t (v/s investment of INR2.4t in the last 37 years). Core capex projects (USD13b investment in petcoke gasification, polyester expansion and off-gases cracker) are largely on track with scheduled completion in next 24 months, i.e. June 2016. (v/s expectation of March 2016 and slight delay could be due to likely time required for trial runs and commercialization post Mechanical completion) E&P development contingent on policies: While RIL is in arbitration with the government over disallowance of cost recovery and implementation of new gas pricing, it indicated that the further E&P development is contingent on timely regulatory approvals and market based gas pricing. CBM development is on track for production to start in FY16. RIL won 2 E&P blocks in Myanmar in FY14 and is on a lookout for more opportunities. Phased telecom launch in 4QFY15; retail sales CAGR pegged at 20-25% RIL has high hopes from its INR700b (v/s INR350b by end-FY14) telecom investment through Reliance Jio and pans a phased launch in 4QFY15. On the organized retail business, it expects to double the business every 3-4 years, implying 20-25% CAGR v/s last 3 year CAGR of 34%. Other Key Highlights Over the next three years, with commissioning of ongoing projects, RIL indicated its aspiration to be in Global Fortune 50 (current ranking at 107). RIL was silent on diesel deregulation and domestic petroleum retailing opportunity. In FY14, RIL commissioned 0.4mmt polyester capacity in Silvassa, 40KT PBR expansion and is also building 100KT butyl rubber plant in JV with Sibur. Key things to watchout: (1) New gas pricing and E&P approvals, (2) Update on core capex plan of USD13b and (3) Updates on retail and telecom foray. Valuation and view Large non-core investments though could be accretive over long-term; gains will be backended, diluting overall return ratio profile in the interim. On FY16E basis, the stock trades at 12.1x adj. EPS of INR87.8 and EV/EBITDA of 10.4x.Neutral.

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