Reliance Industries (RIL) reported in-line standalone revenue of Rs 871.4 bn (-9% y-o-y, flat q-o-q) in Q2FY20. Ebitda came in at Rs 136.7 bn (-8% y-o-y, flat q-o-q) versus our estimate of Rs 136.4 bn owing to the lower-than-expected refinery throughput of 16.7mmt, despite a better GRM of $9.4/bbl (flat y-o-y, +16% q-o-q). Lower depreciation, combined with higher other income and higher interest cost resulted in a beat of 9% in standalone PAT of Rs 97.0 bn (+10% y-o-y, +7% q-o-q). The company recognised the entire MAT cut in the quarter with an effective tax rate of 20.8% versus 25.4% in Q1FY20.

At the consolidated level, RIL reported Ebitda of Rs 221.5 bn (+5% y-o-y, +4% q-o-q), primarily led by the better-than-expected performance of the digital and retail segments. Higher other income led to consolidated PAT of Rs 113.5 bn (+19% y-o-y, +12% q-o-q. In Q2FY20, the tax rate on a consolidated basis stood at 24.7% versus 29.5% in the previous quarter, as the company maintained an effective tax rate of ~35% for retail and Jio. In 1HFY20, standalone Ebitda was down 9.1% y-o-y to Rs 273.1 bn, while PAT was up 6% y-o-y at Rs 187.4 bn, led by a lower tax rate of ~12% y-o-y. Consolidated Ebitda increased 4.1% y-o-y to Rs 434.7 bn, while PAT was up 12.9% y-o-y to Rs 214.9 bn.

GRM negated by lower throughput
Refining Ebit stood at Rs 49.2 bn (-5% y-o-y, +11% q-o-q). The premium to SGRM reduced to $2.9/bbl (v/s $3.4 in Q2FY19 and $4.6 in Q1FY20) as the company had a lower gasoline and FO yield, which primarily drove the improvement in SGRM. Also, the increase in prices of heavy crude had an adverse impact. GRM stood at $9.4/bbl, as against $9.5/bbl in Q2FY19 and $8.1/bbl in Q1FY20. Throughput was at 16.7mmt (-6% y-o-y, -5% q-o-q).

Petrochem volumes improved
Petrochemical Ebit stood at Rs 75 bn (-6% y-o-y, flat q-o-q), led by pressure on product spreads due to the global supply glut. Implied Ebitda (USD/mt) was lower at $317 (-22% y-o-y, -27% q-o-q) due to a sequential contraction in most petrochem margins.

Jio growth momentum continues
RJio maintained its healthy subscriber growth momentum, driving strong earnings growth. Revenue grew 6% q-o-q (in line) to Rs 123.5 bn, while Ebitda increased 10% q-o-q to Rs 51.4 bn (in line). Capex of Rs 137 bn in 1HFY20 reduced from Rs 326 bn in 1HFY19. RJio’s gross debt stood at Rs 1.6 trn (as of Sep’19) and PAT increased 11% q-o-q to Rs 9.9 bn. Net subscriber adds of 23.9m were steady, while ARPU continued trending down.

Valuation
We revise the valuation multiple for the core segment of refining and petrochem to 8.5x (from 7.5x earlier) FY21e EV/Ebitda to factor in the enhanced delayed coker capacity, the widening of crude blend window for maximising distillate yields prior to IMO and the revival in petchem margins for the company under its flexible feedstock utilisation. Our DCF-based TP of Rs 280 (v/s Rs 250 earlier) for Jio ascribes 10.5% WACC and 4.0% terminal growth with implied EV/Ebitda of 16/11x on FY20/21e. The stock trades at 17.5x FY21e EPS of Rs 80.9 and 11.4x FY21e EV/Ebitda. We reiterate our Buy rating with a revised target price of Rs 1,630.