Reliance Industries In-line Performance!

Our ADD rating on Reliance Industries Ltd (NS:RELI)with a price target of INR 2,140 /sh is premised on (1) induction of Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM) as partners in Jio Platform, which should enable the company to accelerate the growth of digital connectivity and create value in the digital ecosystem through technology offerings, (2) recovery in refining and petchem businesses in FY22E, (3) the emergence of a clear path to a stronger balance sheet, and (4) stake sale in the retail business.

• RIL reported standalone revenue/EBITDA of INR 563/76bn, -35/-44% YoY (in line with our estimates). Standalone APAT stood at INR 65bn, -33% YoY (HSIE est: INR 36bn). The deviation in APAT from the estimates was mainly due to the tax expense reversal on account of a reduction in the annual effective tax rate for FY21.
• Standalone refining segment: Crude throughput declined 8/8% YoY/QoQ to 15.3mmt. GRM stood at USD 5.7/bbl, down from USD 6.3/bbl in 1Q. The sequential decline in the refining margin was due to lower cracks across products. RIL's GRMs outperformed Singapore GRM by USD 5.7/bbl (as against USD 7.2/bbl in 1Q).
• Standalone petrochemical segment: Production during 2Q was 9.7mmt, - 2/+9% YoY/QoQ. Petchem EBITDA was INR 59bn, -33% YoY given pricing pressure because of disruptions in the local and global markets. EBITDA/t stood at INR 6,052 (vs. INR 8,839/4,860 YoY/QoQ)
• RJio: Revenue grew by ~33/6% YoY/QoQ to INR 175bn. ARPU rose to INR 145 (+14/3% YoY/QoQ) while the gross/net subscriber addition was ~27/7mn. We expect ARPU to increase to INR 148/160 in FY21/22E owing to the tariff hike in Dec-19.
• Reliance (NS:RELI) Retail (RR): Recovery from the pandemic has been encouraging across categories. Revenue nearly hit base quarter levels (Rs. 411bn). 85% of stores are now operational (1Q: 50%), of which half are fully operational. Footfalls clocked 75% of pre-covid levels (vs 43% in 1Q). Consumer Electronics (CE) doubled, and Fashion & Lifestyle (F&L) tripled their toplines respectively from their 1QFY21 lows (Yet to recoup base quarter sales). Grocery and connectivity continued their strong growth momentum. EBITDAM expanded 160bp QoQ to 5.4% as the mix sharply improved in favor of the high margin CE and F&L segment. (Note: EBITDAM still remains 90bp short of 2QFY20 levels).