RIL delivered a strong 52% yoy growth in its 3QFY18 EBITDA to Rs 176mn driven by the petchem segment and addition of RJio numbers. GRMs were in line but R-Jio continued to surprise with a positive PAT of Rs 14bn. Even after a sharp run-up in the stock, the street is not factoring in the full potential of the integrated petchem expansion and R-Jio's ability to capture revenue share in the consolidated telecom space. Strong GRMs, integration benefits of petchem expansion, higher petchem volumes and R-Jio’s strong performance should drive a strong 20% EBITDA CAGR over FY17-FY19E. We roll over to a Mar’19 TP of Rs 1,015 (from Rs 923 earlier) and maintain ADD on the stock.
GRMs remain solid on strong light-heavy spreads: RIL’s 3QFY18 GRMs came in at US$ 11.6/bbl led by expansion in middle distilleries. GRMs should see a further uptick in the coming quarters with only an 800bpd of net refinery addition globally despite industrial and global economic growth remaining strong. Refining EBIT was flat yoy at Rs 62bn but 9% below EE on greater operating costs due to higher LNG prices
Integration benefits, volume expansion shore up petchem EBIT:
Volume growth in the petchem segment was led by PE and MEG expansion. Strong delta in polyester, PET and PP, along with a shift to the ethane cracker led to the highest-ever petchem margin of 17.1%; petchem EBIT jumped 73% yoy to Rs 58bn. Further, stabilization of the refinery off-gas cracker (ROGC) and streamlining of ethane cracking should sustain petchem delta. We expect FY18/FY19 petchem EBITDA at Rs 248/Rs 277bn vs. Rs 168bn in FY17.
Strong R-Jio performance: R-Jio posted 3Q revenues of Rs 69bn with an ARPU of Rs 154 on an end-quarter customer base of 160mn. Reported EBITDA of Rs 26bn surprised partly due to higher ARPU and lower operating costs. EBITDA margins at 38% were ~360bps higher than Bharti Airtel’s. Acquisition of RCOM assets will reduce operating cost. RIL has Rs 630bn of investment in CWIP and will continue to invest aggressively. Profitability should improve further as competitive intensity reduces and R-Jio achieves a higher market share.
EBITDA beats estimates: The O&G segment remained under pressure with EBIT losses of Rs 2.9bn. Retail revenue was up 116% yoy on growth in digital, fashion & lifestyle and petroleum products; segment EBIT jumped 111% yoy. Overall EBITDA growth of 52% yoy at Rs 176bn was 9% above EE. Inclusion of digital services led to a 62%/73% yoy increase in depreciation/interest costs. PAT grew 24% yoy to Rs 94bn, coming in 13% above EE of Rs 83bn. Capex for Q3FY18 stood at US$ 2.7bn.
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