Reliance Industries (CMP: Rs996)
Mkt Cap: Rs3.3trn; US$
Event:
The two Ambani brothers -- Mukesh and Anil – on Sunday decided to cancel all existing non compete agreements. All existing non-compete agreement between the two groups executed in January 2006 stand cancelled, while a new, simpler non-compete agreement executed limited to only gas-based power generation comes into force. At the same time the two companies have decided to expeditiously negotiate gas supply arrangements in accordance with the orders of the Supreme Court of India.
Exclusivity only with regards to gas fired power
With the non-compete clause having been eliminated for all other businesses, the only business where RIL and RNRL have decided to maintain this is in gas fired power, where RIL has agreed not to enter till 2022. For all other businesses, potentially RIL can now enter the infrastructure and telecom space, while RNRL can foray into oil & gas.
Opens up new business avenues to RIL
With this deal, all erstwhile exclusive domains of the ADAG group including telecom are now open for RIL to pursue, and we view this as a big positive for RIL. For a company that has big project execution and scale as one of the core strengths, we feel thermal power; telecom media & entertainment and financial services could be areas that could attract the company. The opening up of these potential businesses would also provide avenues to deploy the significant amounts of cash flow to be generated from the E&P segment, and would allay concerns around future growth drivers.
View
We see this event as a positive, as it indicates willingness on the part of both groups to move ahead from the dispute and settle outstanding differences. We believe that this implies a speedy resolution to the renegotiation for KG gas, in addition to also providing the opportunity for RIL to get into new businesses, which were off bounds to the group earlier. Further, these developments are expected to eliminate any room for further disputes between the two groups, on matters relating to the scope and interpretation of the non-compete obligations. Reiterate Outperformer.
Key financials
| As on 31 March | FY08 | FY09 | FY10 | FY11E | FY12E |
| Net sales (Rs m) | 1,371,467 | 1,512,240 | 2,037,400 | 2,302,737 | 2,536,145 |
Adj. net profit (Rs m) | 195,251 | 149,503 | 158,980 | 244,466 | 268,780 |
| Shares in issue (m) | 3,270 | 3,270 | 3,270 | 3,270 | 3,270 |
| Adj. EPS (Rs) | 59.7 | 45.7 | 48.6 | 74.8 | 82.2 |
% change | 61.7 | (23.4) | 6.3 | 53.8 | 9.9 |
PE (x) | 16.7 | 21.8 | 20.5 | 13.3 | 12.1 |
Price/ Book (x) | 3.6 | 2.7 | 2.4 | 2.1 | 1.8 |
EV/ EBITDA (x) | 16.2 | 16.2 | 12.4 | 8.5 | 7.1 |
RoE (%) | 24.2 | 14.2 | 12.4 | 16.8 | 16.0 |
RoCE (%) | 12.6 | 8.8 | 9.5 | 14.4 | 14.4 |
Ramnath S / Probal Sen
ramnath.s@idfc.
IDFC Securities Research
*Unedited.
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You cant do anything about the Length of your life,but you can do something about its Width and Depth.
Samir Kumar Shah.
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