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Add Reliance Industries Ltd For Target Rs.2330

Sailed through the tough times!

Our ADD rating on RIL with a price target of INR 2,330 /sh is premised on (1) induction of Facebook, Google, Intel and Qualcomm as partners in Jio Platforms, which should help the company 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 613/87bn, -29/-33% YoY and +9/+14% QoQ (4/17% lower than our estimates). Standalone APAT stood at INR 87bn, -9/+34% YoY/QoQ (HSIE est: INR 64bn). The company has provided for impairment in its investment in Shale Gas subsidiaries to the extent of INR 1.2bn. The company has also recognised Deferred Tax Assets of INR 156bn in respect of the difference between the book base and tax base of the Shale Gas operations. This has resulted in a lower tax outgo for 3Q.

* Standalone Oil to Chemicals (O2C) segment: Revenue grew 11% QoQ to INR 708bn, primarily on account of higher volumes, mainly in transportation fuels, PTA and Polyester supported by improved product realisation across Polymers, Intermediates and Polyester. EBITDA for 3Q improved by 9% QoQ to INR 92bn, primarily on account of higher product sales and shifting of product placement from exports to domestic market. Crude throughput declined 4% YoY and grew 9% QoQ to 16.7mmt. During the quarter, Polymers margins were at a record high, while intermediate margins were sequentially better. Cracker operating rate was 96%, impacted by scheduled shutdown of ROGC at Jamnagar.

* RJio: Revenue grew by ~5% QoQ to INR 195bn. ARPU rose to INR 151 (+18/4% YoY/QoQ) while the gross/net subscriber addition was ~25/5mn. During the quarter, Google invested an amount of INR 337bn into JPL for a 7.73% stake. This has resulted in a total investment of INR 1,521bn by the investors for a stake of 32.88% in JPL.

* Reliance Retail (RR): Reliance Retail's net revenue declined 18.8% YoY to INR 378.5bn. Core operations (ex-F&L) disappointed. While there have been a few restructuring/re-purposing of segments such as (1) Reliance Market transitioning into fulfillment centers, and (2) Petro Retailing being transferred to RMBL (The RIL-BP JV). Adj. performance in grocery and CE remained weak too. F&L segment rebounded strongly and doubled QoQ. Adj EBITDAM (ex-INR 7.75bn investment income) came in at 7%.

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