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FY22 AGM: 5G, new energy, and FMCG foray in focus

We attended the 45th AGM of RIL on 29th Aug’22, following are the key highlights from the event

* The AGM touched upon the company’s ambitious plans across business verticals, particularly the ensuing 5G launch, foray into the FMCG space, and new energy investments.

* RJio plans to launch 5G services over the next two months across major cities with a target to achieve a pan India coverage by Dec’23, incurring an investment of INR2,000b. It also plans to launch JioAir, a 5G wireless device that will accelerate its home broadband services. With the rollout of 5G services and usage of connected devices, the management expects the overall industry subscriber base to double to 1.5b.

* Media: It plans to make inroads in the digital space, with investments in movie rights, original OTT content, and sports content across the spectrum.

* Retail: It will continue to expand in all categories (Grocery, Electronics, Fashion, and Pharma) through physical as well as digital platforms. It also plans to foray into the FMCG space, thanks to its sizeable private label business.

* O2C: It announced a capex investment of INR750b, underscoring capex towards a) a single train PTA plant of 3mmtpa capacity, b) 1mmtpa PET capacity, c) 1mmtpa polyester capacity, and d) an increase of ~3x in vinyl chain capacity from its existing capacity (1.5mmtpa integrated) by CY26.

* New energy: It recently acquired 100% stake in REC Solar, which specializes in solar panels. In addition to the earlier announcements, it highlighted the following: a) an upcoming 10GW solar PV cell and module production capacity by CY24, and b) targeted 20GW capacity by CY26 as part of the five GIGA factories under process.

Valuation and view

We expect consolidated revenue/EBITDA to clock 13%/15% CAGR over FY22-24, which does not factor any incremental growth from 5G capex, new energy, and other segments. Retail, Telecom, and new energy can be the next growth engines over the next two-to-three years, given the large technological advancements and ambitious growth targets. However, the same can dent its existing single-digit return ratios in the near term.

We value the Refining and Petrochemical segment at an FY24 EV/EBITDA ratio of 7.5x, arriving at a SoTP valuation of INR721/share for the standalone business. We ascribe an equity valuation of INR1,027/share to RJio and INR1,202/share to Reliance Retail, factoring in the recent stake sale. Our higher EV/EBITDA multiple of 41x for Retail and 19x for Digital Services, underscore new growth opportunities in the Digital space and steady market share gains. We reiterate our BUY rating with a TP of INR2,880.

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