RIL’s Q4FY20 consol. and standalone Ebitda were in line with our estimates; however, the company has recorded its first ever inventory loss in the O2C business, which has led to a PAT miss.
- RJio’s revenue was up 6% q-o-q to Rs 148 bn (5% miss) led by 1.7% increase in ARPU to Rs 131 (v/s est. Rs 137) due to the price hike taken in Dec’19; subscribers grew 5% q-o-q to 387.5 m. The increase in ARPU was lower than our estimate, likely due to the higher proportion of low ARPU Jiophone customer addition, which may have dragged blended ARPU by 2-3%. The benefit of the price hike has not been fully captured yet with incremental benefit expected to accrue in FY21e of 15/20%.
- FY20 consolidated Ebitda grew 4% y-o-y to Rs 879 bn with adj. PAT up 8% y-o-y to Rs 433 bn. RJio gained from strong subscriber led revenue growth, driving 43% Ebitda growth in FY20. Reliance Retail’s Ebitda surged 56% on revenue growth of 26% coupled with healthy 190bp margin improvement.
- On the other hand, standalone Ebitda was down 12% y-o-y to Rs 519 bn (led by 4% y-o-y decline in GRMs and 18% y-o-y decline in petchem Ebitda/mt).
Adj. PAT declined 3% y-o-y to Rs 342 bn (due to lower depreciation and higher other income).
- Reliance Industries is moving quickly to realise its plan of becoming net debt free by end-FY21. The company is now poised to receive ~ Rs 1,037 bn through rights issue, the Facebook-Jio deal and the Fuel retailing JV with BP in the coming quarters.
- The contribution from standalone business to consolidated Ebitda has declined to 60% in FY20 from 85% in FY15. Higher debt in the standalone business as well as better valuations for Tech/Consumer businesses (together account for 78% of valuations) leads us to believe these two segments are the new core.
- We value RIL at Rs 1,618/share (from earlier Rs 1,589) based on SOTP with equity values of Rs 358/share (earlier Rs 353) for the core business, Rs 500/share (earlier Rs 450) for Reliance Retail and Rs 760/share (earlier Rs 750) for RJio. Maintain Buy.
Decline in debt could result in next leg of re-rating
Standalone debt net of cash and current investments has risen from Rs 938 bn in FY19 to Rs 1,516 bn driven by transfer of Rs 1,080 bn of debt from telecom and partial repayments. Consolidated net debt is marginally up from Rs 1,852 bn in FY19 to Rs 1,876 bn in FY20.
While the stake sale is expected to fetch Rs 436 bn, the company is creating a separate O2C business and is looking forward to another transaction of a similar magnitude. The RIL-BP joint venture is also expected to be concluded soon, which should fetch Rs 70 bn. This is in addition to the rights issue of
Rs 531 bn and PAT + Depreciation of Rs 664 bn in FY21 (capex of Rs 500 bn), which would easily take the company to net debt free status and may drive the next leg of rerating for the company.