RIL is trading at 7.6x FY15 Ebitda (and FY14 end net debt). We expect company Ebitda to grow from $6.5 billion in FY15 to $10 billion in FY17 due to the start-up on the new petchem plants. With the additional $5 billion in telecom capex (but no ebitda from telecom), and at a lower 7x FY17 Ebitda (FY16 end net debt), RIL equity value can see 18% CAGR. The potential revival of E&P volumes (from the satellite/ R-series / NEC 25 fields around 2017/18) may be supportive of RILs Ebitda multiples.
Concerns on telecom capex and weakness in regional/chemical stocks seem to have hurt RIL. In the near term, delivery of the gas price increase should help. Q4 numbers should be supported by higher GRMs. Completion of downstream chemical plants through 2014 could improve visibility of the increased Ebitda.
Reliance Jios telecom launch strategy/execution timelines are still unclear. There is also uncertainty around the scalability and consumer appetite for a data heavy high speed telecom offering in India.
- Credit Suisse