UNLOCKING

VALUE

RELIANCE INDUSTRIES LTD.

A VALUATION REPORT BY VALUATIONARY

WWW.VALUATIONARY.COM
 PREFACE
Reliance JIO: Hey there! I am using WhatsApp.

Facebook acquired minority 9.99% stake in Jio Platforms Limited (JPL) for
approximately ₹ 43,574 crore (at pre-money Enterprise Valuation), making
Facebook’s largest investment in India. The amount will be a balloon
payment with no-milestone funding.

Out of the total fund that would be received, ₹15,000 would be retained in
the company and the balance would be used to redeem OCPS (Optionally
Convertible Preference Shares) investments of RIL in Jio Platforms Limited
(JPL). The debt in the company (Jio) is around ₹40,000 crores, however, the
₹15,000 retained by the company would help it bring down its Net Debt to
₹25,000, thus taking Reliance an inch closer to being a Zero Net Debt
Company by FY21.

Concurrent with this, JPL, Reliance Retail and WhatsApp have also entered
into a commercial partnership agreement to further accelerate Reliance
Retail’s New Commerce business on the JioMart platform and to support
small businesses through WhatsApp.

Partnership with a strong technological partner bring in Synergies and

technical assistance which provide immense value and allow the company
trade at higher multiples. Hence, we believe, Jio would receive higher
Valuation Multiples while aggregating the "sum-of-parts valuation" of RIL.
 BLACK SWAN
Valuation post the impact of the 'Highly Improbable'

However, fuel demand in nations where RIL exported refined products like
diesel and petrol has stalled following the outbreak of the pandemic.
Likewise, the same situation prevails domestically. The SEZ refinery of RIL
operated at 84% capacity Utilisation in March 2020, vs. 110.51% capacity
utilisation in the same month a year back.

The company is expected to see the worse in the Months of April & May, as
most parts of the World would remain under lock-down further curtailing
the demand of crude-derived products.

Henceforth, we expect the Refining, Petrochemicals and Oil & Gas Division
to take the hit at least till the end of Q2 FY2021. However, we expect things
would start to normalize post the Q3 FY2021 and the division would start
contributing significantly as it has been doing.

Likewise, there would be potential revenue loss due to the shutdown of

Reliance Retail network (except Grocery), given the ongoing lock-down in
India, and the pace of recovery remains a question, as the Government
might be unlikely to re-open Consumer Discretionary Stores even after
uplifting the Lockdown.

Therefore, our valuations are based on multiples of FY2022 earnings,

where we expect to have an entire normalized Financial Year.
 THE PARTS
Dissecting the conglomerate into meaningful parts

Reliance Industries Limited has in particular three main divisions:

1.     Refining & Petrochemical Division
2.     Reliance Retail
3.     Reliance Jio Platform

Refining & Petrochemical Division

Reliance Industries owns the world’s largest refining hub in the world at
Jamnagar, along with an additional one, in the SEZ at Jamnagar itself, and
fuels from these refineries are exported to several countries across the
world. It produces gasoline and diesel of different grades which are used
globally. Despite the increase in global supply of Refined Products,
Demand from Reliance has not moved an inch, rather it has increased. A
variety of crude oil and petroleum products are produced which find
their application as Feedstock for Industrial Use and Fertilizers,
Transportation Fuel, and Aviation Fuel. However, a normalcy in demand
can only be expected in the later half of FY21, hence we have based our
valuation on FY22 Earnings.

The decline in Oil Prices, and low LPG prices would help RIL, but
inventory losses, lower cracks (difference in price between a refined
product (or group of products) and crude oil, are currently causing an
hindrance in the growth of Reliance Industries Limited. Petrochemical
Division Margins were improving for the company, before COVID- 19, and
we do not expect it revamp before the 2nd Quarter of FY2021.
 THE PARTS
continued...

Reliance Retail

Reliance Industries Limited incepted its retail business in 2006, and has
developed nation-wide coverage through its supermarkets, hypermarkets,
wholesale cash & carry stores, & online stores. The company has
established itself as the largest retailer in the country on the basis of
Turnover, however it has not been able to meet the Operating Margins of
that of other Retailers in the country like Trent (18.10% TTM), Avenue
SuperMarts (9.00% TTM), and Shoppers’ Stop (15.9% TTM). With the
growing expansion and technical assistance provided by Facebook to
provide a platform through JioMart, we expect the Margins, to improve
significantly from here (5.60% TTM).

Reliance JIO Platform (RJP)

The lockdown should have the least impact on RJio as telecom companies
are expected to see recharge upgrades given the increase in data
consumption. Moreover, Facebook’s entry seems to come at a time, when
there are delays on Aramco deals, due to the falling oil prices. Thus,
providing the much-needed cushion for Reliance in terms of Cash Flow
Management. The launch of e-commerce (Jio Mart) and leveraging through
WhatsApp should provide faster inroads to Jio and boost its market share
from 32% (terms of subscribers) held currently, further enhancing its
position in the market. We also expect another price hike in the Industry
which would further improve the ARPUs (Average Revenue Per User) for
the company.
 THE MATH
Assumptions are backed by thorough research and follow conservatism principle

To arrive at the SOTP (Sum of total Parts) Valuation, we have considered

the following multiple in accordance to the applicability to the sector:
EV/EBITDA
P/S

Refining & Petrochemical Division (also includes E&P Division)

FY22(E) EBITDA - ₹60,400 crores. ((-)22%, +40%)
Forward EV/EBITDA = 7x

Reliance Retail
FY22 (E) Sales - ₹1,95,000 crores. (+8%, +13%)
Forward P/S = 2x (estimation explained in following points)
TTM Average P/S multiple of top 6 Retailers in India: 2.5x
Industry growth rate expected: FY21 – 7%, FY22 – 12%.
Hence, Forward P/S multiple based on FY22 Sales: 2x

Reliance Jio Platforms

FY22 (E) Subscribers – 40.7 crores (40 crores – FY21)   
FY22 (E) ARPU (Average Revenue per User)– ₹175 (₹165– FY21)
FY22 (E) EBITDA – ₹44,000 crores (₹40,100 crores – FY21)
Forward EV/EBITDA = 10x (upgraded as per Facebook deal)
VALUATION
"Valuation is as much an art as it is a science.”
 ENTERPRISE VALUE
The price a buyer would pay if he were to buy the Company.

Net Debt
10%

Refining & Petrochem

31.5%

Reliance Jio
29.5%

Reliance Retail
29%

**The deal with facebook would bring far greater synergy as it is done for a
strategic purpose, viz. higher Sales and Operating Profitability for the company
(Reliance Jio and Reliance Retail) which haven’t been completely accounted for, to
remain on the conservative side. Hence, we feel there is a potential value unlocking
opportunity in the most valuable company of the Country, by market capitalization.

**The information contained herein is based on assumptions which may or may not
materialise in the foreseeable future and is prepared for understanding the
company and the Industry and the effect the deal might have on the aggregate
Valuation of the subject Company. This data may not be useful to certain or any
agencies for taking any legal or strategic decision and the users/readers are
advised to apply their own knowledge, resources and mind before using the data or
views reflected in the report. We will be in no manner liable for any direct or
indirect claim or losses to any person arising due to this report.
 SAUDI ARAMCO DEAL
World's most profitable company is driven by curiosity to explore, but curiosity killed the cat

The world’s biggest crude producer, Saudi Aramco had decided to own a
part of the world’s biggest oil refinery. The company planned to purchase
20% stake in the Oil-to chemicals business of Reliance Industries Limited.
The deal was valued at $15 billion (for 20%), which makes the total
Valuation of the division worth $75 billion. As part of the deal, Reliance
would be purchasing 500,000 barrels of crude a day from Aramco.

However, Saudi Aramco might hold back on the deal due to the outbreak
of Corona Virus, which resulted in plunging of Oil Prices, as most of the
Oil Companies (including Aramco) would be looking to put their cash
reserve to use.

If the deal takes place as planned, RIL’s vision to become Debt-free by

FY2021 would expedite. The deal would reduce Company’s Net Debt to
significant levels, however, valuing the Oil & Refinery Division as per the
Aramco Deal would be jumping the gun. Also, the strategic deal would
vertically integrate Saudi Aramco’s business and bring in operational
synergies, which makes the company to likely pay way more than what
any other Investor would.
ABOUT
VALUATIONARY
Valuationary is a team of investment
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strategy consultants who came
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FOUNDERS "Valuing a business is part art and

part science.”
-Warren Buffett
KUNAL SHAH, CFA, FRM
Valuation Expert who has helped
multiple companies to raise new
capital, Former Research Analyst
@ Motilal Oswal

PRATIK BAJAJ, CA, CFA

Portfolio Manager, Investment
Banker, Strategy Consultant,
Former Foreign Assets Manager
@ Bank of America Merrill Lynch

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