Stock Update: Reliance Industries | TradeBizz Research

Reliance Industries
Reco: Buy
PT: Rs1,510
CMP: Rs1,371

Strong subscriber retention is positive for telecom business; remain optimistic on refining margins

RJIO successfully signs up 72 million customers under JIO Prime membership – much ahead of street expectation of 50% retention ratio: Reliance JIO (RJIO) has announced that around 72 million customers have signed up for the JIO Prime membership. The retention ratio of 72% on a subscriber base of 100 million is encouraging and much higher than the street estimate of 50%. Moreover, RJIO has extended the deadline to join the JIO Prime membership to April 15, besides introducing a Summer Surprise Offer whereby customers doing a recharge of Rs303 before April 15 would get free data and voice services for three months (April to June 2017) and their paid recharge would be applied in July 2017. Although free services for the next three months would mean a slight delay in revenue generation for RJIO, but the above initiatives are positive, as they would help RJIO to reach close to its near term subscriber base target of 100 million.

  

For Stock Cash Tips, Stock Future Tips, Stock Option Tips, Stock Market Tips visit @ TradeBizzResearch

Remain positive on refining margins as gasoline cracks are expected to recover from recent lows with start of US summer driving season: Gasoline crack spreads declined sharply to $9.8/bbl in March 2017 from $12.5/$12 per barrel in February/January due to an increase in the US gasoline inventory to an all-time high level of 259 million barrels on February 10. We expect the US gasoline inventory level to decline, as gasoline consumption is likely to increase with the start of the summer driving season in the US. We therefore expect the gasoline margins to recover to a sustainable level of $12-14/bbl. Hence, we do not see any risk to our FY2018E GRM assumption of $11/bbl. However, we highlight here that for every $1/bbl fall in the GRM, RIL’s FY2018E/FY2019E EPS should decline by ~9%/7% and vice versa.

Petrochemicals business to benefit from capacity expansion and likely improvement in margin: Under its Petrochemicals business, RIL plans to double its production capacity of Polyester and Fibre Intermediaries. Moreover, additional ethylene capacity of 1.4mmt would come on-stream following the commissioning of the Refinery Off Gas Cracker (RoGC) and would help expand the Petrochemicals segment’s margins, given the switch over to gas from naphtha. Overall, at full utilisation level, we expect an incremental EBITDA of ~$1.0 billion from the Petrochemicals capacity expansion and the RoGC project.

Rupee appreciation is negative for RIL, 5-6% impact on RIL’s EPS: Recently, the Indian rupee appreciated by 3.9% against the US dollar to Rs64.9 compared to the Q3FY2017 average of Rs67.5. For every Rs2 appreciation in the rupee, RIL’s FY2018E/FY2019E EPS is expected to decline by ~5.9%/5.3%, as a majority of its margins (Refining, Petrochemicals and E&P) are dollar denominated.

Maintain Buy with revised PT of Rs1,510 as likely commissioning of downstream project provides earnings growth visibility for the core businesses: We have lowered our FY2018E EPS by 11.5% to Rs101.6 to factor in losses from the Telecom business in the initial years of launch and introduce our FY2019E EPS of Rs120.1. We have increased our price target to Rs1,510, as we have rolled our valuation multiple for Refining and Petrochemicals segments to FY2019E EBITDA. We maintain our ‘Buy’ rating on Reliance Industries given the strong earnings growth outlook (CAGR of 9% over FY2016-FY2019E despite losses from the Telecom business), led by the Petrochemicals capacity expansion, and commissioning of the RoGC and Petcoke Gasifier projects. Any positive surprise in terms of better-than-expected financials of the Telecom business would be an important re-rating trigger for RIL going forward.

                       For More Details Click Here - http://www.tradebizzindia.com/freetrial